How to Invest in a Blue Chip Stock

Before you invest your hard-earned money in the stock market, it's a good idea to decide whether you are a tortoise or a hare. Hare investors go after high-flying stock market darlings of the moment, while tortoise investors prefer solid, well-established stocks with a long history of steady, stable growth over the long haul. As in Aesop's fable, tortoise investors tend to win the race with a slow and steady pace, while hare investors may rack up big gains in the beginning, but tend to fade over the long term.

Research Your Options

Do your research. All blue chip stocks are not created equal. Some blue chip companies perform significantly better than others, and even some blue chip companies with long histories of financial success stumble and fall. Contact the investor relations department of any blue chip company you're interested in and request the most recent annual and quarterly reports. Look over the balance sheet. Consider any changes in management or company philosophy that can impact future results. Look for a long history of steady and rising dividend payments, as well as for stock price fluctuations. In stock market terms, a long means at least 10 years, but a better indication is 20 to 50 years, and the history should include periods of general economic booms and downturns.

Some blue chip companies allow you to bypass your broker and buy shares of their stock through a direct stock purchase plan. You can also gain a diversified portfolio of blue chip stocks with a single investment by purchasing shares of a blue chip mutual fund, but many investors prefer to buy stock directly.

Pick Your Stocks

Decide on the blue chip companies you want to invest in. The U.S. Securities and Exchange Commission recommends diversifying your investments portfolio as a means of reducing your risk. While investment experts disagree on how many different stocks you need to own for a properly diversified portfolio, you should definitely own more than one. Four stocks is probably too few, but after 16 the benefits of diversification appear to wane significantly. Look for blue chip stocks that pay their quarterly dividends in different cycles, if you want to create a stream of monthly dividend income.

Pick a Good Broker

Open an investments brokerage account if you don't already have one. Depending on the level of personal service you need, you might choose a full-service broker, a discount broker or an online broker. The new account application will require some personal information, such as your name, address, contact information and Social Security number. You might also be asked for identifying documentation, such as a driver's license or passport to comply with provisions of the Patriot Act. Once your account is open, you'll probably need to make an initial minimum deposit with your broker.

Enter your buy order for the number of shares of the blue chip stock you want to buy. You can enter the order at the market and the order will execute at whatever price is offered, or you can enter a limit order, which allows you to specify the maximum price per share you are willing to pay. A limit order will only execute if a seller is willing to meet your price.

And just remember: that any investment in the stock market, including blue chip stocks, involves risk. Past performance is never a guarantee of future results. You could lose some or all of your investment.

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