Blue Chip Shares to Buy

When investing in shares, one of the questions you must ask yourself is what type of shares are you going to invest in? There are many types of shares one can buy, including growth, speculative, value, and blue-chip.

The term ‘blue-chip’ comes from poker parlance, in which the highest and most valuable playing chip is – you guessed it – blue. Blue-chip shares are those of any company which is nationally recognised, well-established and financially sound.

More specifically, blue-chip companies will have a solid record of stable earnings and/or dividend growth, and a reputation for high quality management and/or quality products and/or services.
Blue-chip shares in the Australian sphere include;

• BHP
• Rio Tinto
• The big four banks (ANZ, CBA, NAB, WBC)
• Telstra
• Westfield

Blue-chip shares are often regarded as boring, but it cannot be denied that they have long reigned supreme in the portfolios of those investors who are more conservative, retirees, and non-profit foundations.

The boring stigma comes from the fact that blue-chip shares are perceived as ‘safe’, making them particularly attractive to inexperienced investors, such as mums and dads.

When purchasing shares in a company such as BHP or Telstra, it is hard to envisage not receiving a return on your investment. This is not to say that blue-chips are without risk, any investment has risks, but they are as close to a ‘sure thing’ you will find in the stock market.

One of the benefits of blue-chip shares is that they generally will pay healthy and regular dividends. This tends to be attractive to investors who wish to derive a cash flow from their investments, and indeed novice investors such as the previously mentioned mums and dads.

Despite their advantages, blue-chip stocks are comparatively expensive. It is not uncommon to pay anywhere between $10 and $50, if not up to $100 for a single unit of a blue-chip company. Given this, it makes it difficult for small investors to base their portfolios on blue-chips.

Furthermore, given their relative safety, blue-chips offer relatively modest returns. If you don’t already know, the only way to increase your return with any investment is to increase your risk. This is a simple, inescapable tenet of investing. So, when investing in blue-chip shares the price you pay for safety is the potentially higher return you could be earnings by investing in speculative or growth stocks.

For those interested in investing in blue-chip stocks, a good starting point is the ASX top 20. This is the list of the top 20 companies on the Australian Stock Exchange (ASX) by market capitalisation.