Investing in conventional blue chip stocks may not have the attraction of a sizzling high-tech deal, however it can be extremely rewarding nevertheless, and as good quality stocks are seen to have outperformed other investment groups over the long stretch.
Traditionally, investing in stocks has been seen to have generated a great return over time, of between 10 and 15 percent per annum depending how much of an aggressive investor you are. Stocks do better than other investments since they sustain more risk. Stock investors are at the base of the corporate “food chain.” First, companies have to make payment to their employees and suppliers. Then they also have to pay their bondholders, and after this then comes the turn of the preferred shareholders
Companies are under the obligation to make payment to all these stakeholders first, and if afterwards there is money leftover it is then paid to the stockholders via dividends or reserved earnings. Occasionally there might be a lot of money left over for stockholders, and also in some other instances there might turn out to be nothing. Therefore, investing in stocks tend to be very risky because investors don’t know exactly what the return is going to be for their investment.
So what are then the attractions of blue chip stocks? I will try to itemise these attractions below;
1. There is the great advantage of long term rates of return.
2. Unlike mutual funds you don’t run the risk of ongoing fees.
3. You find yourself being part of the owners of a company that is doing well.
So this article doesn’t turn to a cheerleading project for blue chip companies, we will look at the risks involved.
1. Certain investors can’t put up with both the risk connected with investing in the stock market and the risk connected with investing in one company, because all blue chip companies are not equal.
2. If you are lacking the time and skill to identify a good quality company at a fair price then rather than investing directly, you might want to consider mutual fund.
Deciding on a blue chip company is only half the battle, while the ability to determine an appropriate price is another issue to consider. So in deciding this we must bear in mind that supply and demand for a stock is what determines the stock’s daily price.