Blue Chip Stocks vs. S&P 500

Asset classes

Blue chip stocks vs. S&P 500 is the first point, to begin with when planning to invest in stocks. Learning about these types of stocks helps you decide where to invest your money. Additionally, learning about it also enables you to make good decisions, and that in turn gives good profit in stock trading. So, what are the differences between blue chip stocks and S&P 500? And which type is better for you? 

In this article, we are going to explain blue chip stocks vs. S&P 500 in detail. So, keep reading with all your attention because you are going to learn all you need. Let’s start right away. 

Blue chip stocks vs. S&P 500

It is often overwhelming for investors, especially beginners, to choose between blue chip stocks and S&P 500. However, it should not be so because there are significant differences between these two types of stocks. Let’s discuss each type and then the differences between them.

Blue chip stocks

Blue chip stocks are stocks of highly successful companies with a strong track record of success. These companies have been operating for years and established themselves as major players in the industry. Blue chip stocks have the trust of investors all across the globe because of their outstanding success. Investors consider these stocks safe for investment. However, blue chip stocks are significantly expensive and suit investors with a huge amount of capital. Microsoft, Apple, Facebook, etc. are among the big names in the wide list of blue chip stocks. 

S&P 500

The S&P 500 is in fact a market index that tracks the performance of top 500 companies by market capitalization. However, it is important to note that market capitalization isn’t the only criterion. Factors like liquidity and the number of total outstanding shares of companies are also important in the index. Furthermore, it is also important to note that you cannot invest directly in S&P 500. Investing in S&P 500 refers to investing in ETFs or index funds created to copy the S&P 500 index’s performance. 

Blue chip stocks vs. S&P 500 – the differences

So, what are the differences when it comes to blue chip stocks vs. S&P 500? Before discussing the differences between the two, it is worth noting that blue chip stocks often feature in the S&P 500 index. In fact, stocks earn status as blue chip stocks only after featuring in the index. This is a bit confusing for average investors. They might think that how is it better to invest in blue chip stocks or S&P 500 if they overlap. Let’s dig deeper to find out.

Investors vary widely in terms of strategies, risk tolerance, capital, and so on. Additionally, investors invest in securities for different reasons. That being said, whether you should invest in blue chip stocks or S&P 500 depends on your trading strategy, goals, and your personality. However, here are a few factors you need to consider when it comes to blue chip stocks vs. S&P 500.

1. Diversification

If you are looking for diversification, nothing beats S&P 500 in terms of diversification. When you invest in S&P 500 index funds and ETFs, it means you are investing in a variety of stocks included in the index. On the flip side, blue chip stocks don’t offer such diversification. They are expensive and you can only invest in one or two stocks with limited capital. 

2. Capital

You also need to consider how much capital you have when it comes to blue chip stocks vs. S&P 500. Blue chip stocks are expensive and are, therefore, out of reach of average investors. You cannot diversify your portfolio as much as you would want to with blue chip stocks. Contrarily, you need lower capital for diversification while investing in S&P 500. 

3. Potential risk and reward

As you know, the S & P 500 index is designed to be widely diversified. That means they are less risky as compared to investing in individual blue chip stocks. The former are less risky because they include a portion of all stocks included in the S&P 500 index. 

The wrap-up

It depends on a variety of factors when it comes to blue chip stocks vs. S&P 500 for investment. For example, if you are looking to diversify your portfolio, S&P 500 is the best option. However, the key factors to look at are diversification, capital required, and potential risk and reward. 

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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