What Are Blue Chip Stocks? Meaning, Pros and Cons for Beginners
Blue chips are the stocks of the largest and most reliable companies. Here's where the term came from and why even “reliable” stocks can fall.
What it is
Blue chips are the stocks of large, well-known and stable companies with a big market capitalization and high liquidity. The name comes from poker, where blue chips are the most valuable.
How they differ
| Blue chips | Small and mid caps | |
|---|---|---|
| Company size | The largest | Medium and small |
| Liquidity | High, narrow spread | Lower |
| Price swings | Usually calmer | Usually bigger |
| Dividends | Often stable | Varies |
They're usually part of a country's main indexes, such as the S&P 500.
Pitfalls
- Reliability doesn't mean no drops: in a crisis, blue chips also lose tens of percent.
- Today's blue chip may drop out of the index in 10 years.
- Even with blue chips, it's better to build a portfolio — diversification.
The basics — in the stocks lesson.
Aspiro Invest — a medium-term portfolio: what to hold, when to review it and where the protective levels are.
- Blue chips are stocks of the largest and most liquid companies.
- Calmer than small and mid caps, but they fall too.
- A portfolio of several is better than a single stock.
Frequently asked questions
Are blue chips suitable for beginners?
People often start with them: there's a lot of information about the companies, and the spread is narrow. But the risk of a drop remains, and decisions should follow a plan.
How do I find blue chips?
Look at the components of your country's main index — it includes the largest companies.
Can I buy all the blue chips at once?
Yes, through an ETF or an index fund. More in the article “what is an ETF.”
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