What is a blue-chip stock?

A blue-chip stock is a share in a big, well-known company that has been profitable for a long time and is expected to stay that way. The name comes from poker, where blue chips were the most valuable. Coca-Cola, Johnson & Johnson, Procter & Gamble, Microsoft and JPMorgan are the kind of names people mean.

There is no official list. The usual markers are a large market value, decades of operating history, consistent earnings, a strong balance sheet, and often a long record of paying and raising dividends. The 30 companies in the Dow are generally considered blue chips, which is roughly what that index was built to represent.

They are safer than the average single stock in the sense that they rarely go bust and tend to fall less in a downturn. They are not safe in the sense of not falling: General Electric was the definition of a blue chip and lost most of its value over a decade. Being large and old is protection against sudden collapse, not against slow decline.

For a beginner, blue chips are a sensible place to start if you want to own individual companies, but an index fund already contains all of them plus 470 others, which is the more diversified way to hold the same names.