Blue-Chip Stock
Definition
A stock in a large, well-established, financially sound company with a history of reliable performance, typically a component of major market indexes like the Dow Jones or S&P 500.
Blue-chip stocks represent the largest, most stable companies in the market — household names like Apple, Microsoft, Johnson & Johnson, and Procter & Gamble. The term comes from poker, where blue chips traditionally carry the highest value.
These companies typically share several characteristics: market capitalization in the hundreds of billions, decades of operating history, consistent dividend payments, strong balance sheets with manageable debt, leadership positions in their industries, and inclusion in major indexes.
Blue-chip stocks are the foundation of most conservative and moderate investment portfolios. They tend to be less volatile than small-cap or growth stocks, often pay dividends, and have historically recovered from market downturns more reliably. However, their large size means growth potential is usually lower than smaller, faster-growing companies.
Many investors gain blue-chip exposure through index funds (an S&P 500 fund is essentially a diversified blue-chip portfolio) rather than picking individual stocks. This provides instant diversification across hundreds of large companies.
Tracking your blue-chip holdings in Clarity alongside other asset classes helps ensure your portfolio maintains your target allocation between established large-cap positions and higher-growth investments.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Are blue-chip stocks safe investments?
Safer than most, but not risk-free. Blue-chip stocks can still lose significant value during market downturns (many dropped 30-50% in 2008-2009 and 2020). They're considered 'safer' because they typically recover and continue growing over long time horizons, and many pay dividends that provide income during downturns.
What's the difference between blue-chip stocks and index funds?
Blue-chip stocks are individual companies. Index funds hold many stocks (often including blue chips) in a single fund. An S&P 500 index fund holds 500 large-cap stocks, providing diversification that individual blue-chip stock picking can't match.