Invest in the top-performing stocks among blue chip companies and your investments will be safer and more stable during an economic or stock market downturn

We advise investors to look for top-performing stocks among blue chip companies that are likely to pay off if business and the stock market are good—but that won’t hurt them too much during those inevitable periods when business or the markets are bad.

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

Find top-performing stocks among blue chip companies to help protect against risk

We believe that investors should devote the biggest part of their portfolios to large, well-established “blue chip” securities. At the same time, though, a strong portfolio anchored with blue chip stocks offers the opportunity to invest a smaller part of your portfolio in promising smaller companies without subjecting yourself to excessive overall risk. And the best of these smaller companies may one day grow into blue chips themselves.

Shares of large, well-established companies generally have a market “cap” (that’s short for “capitalization,” or total value of shares outstanding) of billions of dollars. They usually rebound better than other stocks from downturns.

“Small caps” are smaller companies with a market capitalization below some arbitrary figure, such as, say, $1 billion. They are typically more volatile—rising more quickly in bull markets, but often falling quicker in market downturns, and rebounding more slowly.

To succeed in today’s volatile markets, you’ll need to own shares in a variety of companies of varying sizes. But here’s one thing your best choices will have in common: each will be about the right size to succeed in the business it is in.

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Stay patient with your top-performing stocks and you will be rewarded

All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)

If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.

Find top-performing stocks in blue chip companies to build stability within your portfolio

It’s essential to invest in stocks that have some history of rising sales, if not profits. Blue chip stock issuers are generally well-established, dividend-paying corporations with strong business prospects. These are companies that also have strong management that will tend to make the right moves to compete in a changing marketplace.

For example, we like high-quality blue chip consumer-product companies because they can provide stability during a recession or economic slowdown. Typically, consumer-products companies sell staples, like soap, soup and beverages, that consumers must buy no matter what the economy is doing.

Strong consumer-products companies share a number of characteristics. These include geographic diversity to protect them from regional economic difficulties, a record of rising cash flow and strong balance sheets. All these are characteristics of blue chip consumer stocks.

Meanwhile, we believe that a record of increasing dividend payments is a good indication of a strong blue-chip company, especially in a slow economy. High-quality blue chip stocks will usually be in a position to remain profitable during almost any type of economic hardship or recession. Plus, you get paid blue chip dividends and earn income while you hold these stocks even if share prices are falling.

Use our three-part Successful Investor approach to discover top-performing blue chip stocks and boost your portfolio returns

You will have a strong selection of blue chip stocks in your portfolio when you follow our three-part investing program.

These three safeguards will tend to limit your losses at the worst of times. But over long periods, they also let you profit nearly automatically.

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

Some investment analysts believe that many blue chip stocks have gone past their prime and are not worth investing in anymore. How do you feel about the current state of investing in blue chip companies?

What was your experience with blue chip stocks in your portfolio during the last bear market?