Are blue chip stocks safe? Well, they are safer than other investments due to their sound financials, history of success, and reputation—but no investment is guaranteed

Are blue chip stocks safe? While there are no guarantees in stock investing, at TSI Network we feel that blue chip stocks that have been paying dividends for five to 10 years or more are among the safer investments you can make. Dividends are a sign of quality and a company’s financial health. Dividend-paying stocks that we consider to be safer investments include Canadian banks and utilities.

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Are blue chip stocks safe? Learn the characteristics of “safer” stocks

There are also a host of key indicators to determine if a security is a safer investment, like management integrity, the company’s growth prospects and its stock price in relation to its sales, earnings, cash flow and so on.

As mentioned, dividends are a key factor. For a true measure of stability, focus on those companies that have maintained or raised their dividends during economic or stock-market downturns.

Overall, we think investors will profit most—and with the least risk—by buying shares of well-established, dividend-paying stocks with strong growth prospects.

For safer investments, follow TSI Network’s three-part Successful Investor strategy:

1. Invest mainly in well-established companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.

Why blue chip companies are good companies to invest in

Are blue chip stocks safe? Not necessarily, but you can look at top blue chips as among the strongest and most secure stocks in the market.

Blue chip companies are typically defined as firms whose stocks have an established national reputation for quality, reliability and the ability to operate profitably in good times and bad.

In plain English, when you ask, “What are blue chip companies?” the answer is usually a company you already know. Companies that have stood the test of time, and pose much less risk to an investor even in the worst of financial times, are blue chip companies. IBM and Loblaw are two good examples.

When assessing blue chip companies, you need to ask yourself what they are doing to remain vital. These companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per- share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

Are blue chip stocks safe? They are some of the most-secure stocks on the market

If you follow our three-pronged approach, then you should have an above-average chance of long-term gains in excess of what you’d get with any other investment approach.

We recommend many top blue chip stocks in The Successful Investor and Wall Street Stock Forecaster. These blue chip stocks have a history of earnings and, in most cases, dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many suffer in a long-term market downturn, but they offer a higher probability of long-term gains.

In a deep or long-lasting market setback, your blue chip stocks will tend to go down, along with everybody else’s. But we think they will go down less and recover sooner.

At the same time, if a deep or long-lasting market setback does occur, aggressive stocks you own are likely to fall more than shares of blue chip companies. The eventual recovery of aggressive stocks is also less certain. That’s why we recommend that you hold the bulk of your investment portfolio in securities of the best blue chip companies.

The safest way to invest money: Have a plan

Safer investing also means taking a careful and methodical approach to investing which does not jeopardize your savings or your investment goals. There will always be some inherent risk when investing, so making safer investing decisions lets you minimize that risk.

One way that new investors can make safer investing decisions is to stop basing decisions to buy or sell a stock on past stock-price performance alone. Rising and falling trends come in many shapes and sizes, depending on what’s going on in a company, its industry, and the world. But in the end, a stock never gets so high that it can’t keep rising, or so low that it can’t keep falling.

Safer investors are those who think about their investing from a long-term point of view. Safer investing means not overreacting to short term market corrections and downturns.

Not all blue chip stocks are worthy investments. Some present high dividend yields right before a stock price crash. How can you be sure of the safety behind a blue chip investment?

What steps do you take to ensure the safety of your overall portfolio? How did you determine these steps?