The Benefits of Investing in Blue-Chip Stocks
Why Should I Invest in Blue-Chip Stocks?
When it comes to finding investments to add to your retirement portfolio, it’s always a good idea to create a diversified mix of blue-chip stocks and growth stocks. Some stocks do better when the economy is running on all cylinders; others perform well even when the economy is facing headwinds or is in a recession.
Technology stocks are a great example of growth stocks. It’s not uncommon for investors to get excited about the potential of a technology stock. This exuberance can send the share prices of growth stocks up 100%, 500%, or even 1,000% over a very short period, sending valuations into the stratosphere.
But there is a risk/reward trade-off.
Stocks don’t always go up, and in an environment of slowing economic growth and rising interest rates, growth stocks take a hit. When there are higher interest rates, it costs more to borrow. Not only that, but also a company’s future earnings are worth less today. The further down the road profitability is, the less valuable a company becomes.
And with interest rates on the rise and inflation at 40+-year highs, there’s less reason for investors to pour their money into risky assets like growth stocks
What Are Blue-Chip Stocks?
Blue-chip stocks are large, established companies with rock-solid balance sheets, massive brand recognition, and relatively cheap valuations.
Examples of blue-chip stocks include Royal Bank of Canada (TSE:RY), Canadian National Railway (TSE:CNR), BCE (TSE:BCE), Imperial Oil (TSE:IMO), Alimentation Couche-Tard (TSE:ATD), Telus Corporation (TSE:T), and Loblaw Companies (TSE:L).
With a big blue-chip stock, you aren’t discovering an under-the-radar stock. Instead, you’re investing in a stable company that provides buy-and-hold investors with excellent long-term returns.
Blue-chip stocks provide reliable earnings and revenues and stable dividends regardless of what’s going on with the broader market. That’s because blue-chip stocks tend to offer essential products and services that people need regardless of where we’re at in the economic cycle. The pandemic certainly showed us that no one wanted to be without toilet paper.
Blue-chip stocks may not provide investors with the same kind of oversized, near-term gains that some growth stocks do, but they do deliver amazing long-term growth. And they tend to weather economic downturns and volatility much better than growth stocks. When there is a stock market crash or correction, blue-chip stocks tend to be the ones that rebound first.
Another benefit of blue-chip stocks is their dividends. Because blue-chip stocks make lots of money, they reward their buy-and-hold investors with dividends; that is, monthly or quarterly cash paid to shareholders. When the dividend is paid, it either goes into your bank account or you can reinvest it in more company shares.
In addition to paying a reliable dividend, the best blue-chip stocks also raise their payouts every year. Whether the stock market is going up, down, or sideways, whether we’re facing a recession, war, pandemic, or soaring inflation, they give their shareholders an annual raise. Some blue-chip stocks have been raising their annual dividends for more than 50 years.
Dividends reflect a company’s success. A business that hikes its annual dividends on a regular basis is telling us that it’s doing well now and is confident about its future.
In fact, reliable blue-chip stocks that provide investors with a growing share price and dividend are the anchors of a well-diversified retirement portfolio.
Why Should You Trust Sharp Asset Management for Your Retirement Planning?
If you have a long-term investment horizon, it’s important to make room for blue-chip stocks that continue to do well year after year and provide decades of uninterrupted growing annual dividends.
If you live in Toronto, Mississauga, or anywhere in the GTA and are looking for a portfolio management firm or asset management company that can help you build a diversified portfolio that best suits your investment goals and risk tolerance, Sharp Asset Management can help.
Sharp Asset Management Inc. is an independent portfolio management firm that is 100% owner-operated. Since we are a highly concentrated group of professionals, we can respond quickly to changing market conditions.
Sharp Asset Management is not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients. That means our team of wealth management professionals is focused exclusively on helping you achieve your unique, long-term investing objectives. To learn more about investing with Sharp Asset Management, contact us today.