Buying top U.S. blue chip stocks is a smart move for investors looking for diversification as well as high-quality holdings

When assessing U.S. blue chip companies that are good to invest in, you need to ask: What are they 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.

High-quality U.S. blue chip stocks must also be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies.

U.S. blue chip stocks can add a lot of value to your portfolio

The blue-chip investments we recommend for the most part have a history of profits going back at least 5 to 10 years. Companies that make money regularly are safer than chronic or even occasional money losers.

Blue chip companies can give investors an additional measure of safety and diversification in volatile markets. And the best ones offer an attractive combination of moderate 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.

Expect to pay market prices when you add the top U.S. blue chip stocks to your portfolio

For many investors, buying stocks involves a two-part decision. First, they decide which ones to buy, then they decide what price they want to pay. Most want to buy, say, 5% to 10% below current prices.

These investors often explain that they are simply looking to buy stocks like a smart consumer buys a car. However, the stock market is more efficient than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.

If you always try to buy below the market, you’ll always get a “fill” on stocks with hidden flaws. They’ll always come down into your buying range….and they’ll keep on falling.

But you’ll never get to buy the other kind of stock—the kind that keeps going up. They’ll always seem too expensive, and they’ll go on to get even more expensive. But you need a few of these ever-more expensive stocks to offset the losses from those that get cheaper and cheaper.

True Blue Chips pay off Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor. Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Avoid selling your U.S. blue chip stocks early and hold onto your future gains

It’s all too easy to sell a stock that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only buy a stock if somebody who owns it wants to sell.

Before you act on a selling rationale, take a broader look. Consider facts about the blue chip stock, as well as your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Use our three-part Successful Investor approach to select the best U.S. blue chip stocks 

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, mainly 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. 

Bonus tip: Small cap stocks can supplement a portfolio that includes top-performing U.S. blue chip stocks.

Most investors should hold the largest part of their investment portfolios in securities from blue chip companies.

On the other hand, the best small caps are well-established firms in growing fields, despite the fact that they may not have as secure a hold on a growing or stable clientele that conservative stocks have.

Incidentally, we think it’s a mistake to generalize about small cap stocks. Some small caps are junk. Others are small companies that have a history of sales and earnings, and attractive growth prospects. Others are industry leaders that have small capitalizations only because they serve a small industry. 

How much of your portfolio do you dedicate to U.S. blue chip stocks as a way to balance less conservative investments?