In poker, you can buy blue chips for $10 apiece. You need a higher budget to buy blue-chip stocks — but you’ll find they’re better investments. More importantly, a larger play in blue-chip stocks could be what your portfolio needs in 2022. Here are three reasons why.
1. The 2022 outlook is uncertain
The stock market may be rocky this year. Of course, you can say that at the start of nearly every new year. But in 2022, business have some tough circumstances to manage. Rising inflation, and the related possibility of rising interest rates, is one. Another is a growing acceptance that the coronavirus pandemic may linger on, despite increasing access to vaccines.
It’s in uncertain times like these that blue-chip stocks can shine. Most blue chips have decades of experience managing through all types of economic cycles. These companies have capital, too — they’re generally valued at $5 billion or more. And importantly, blue-chip companies are segment leaders, with varied revenue streams and loads of loyal customers.
Those traits foster stability — which, admittedly, can be bad and good for investors. On the bad side, blue-chip stocks don’t grow as quickly as their smaller, nimbler counterparts. But then, they don’t fall as quickly either.
If you are interested in de-risking your portfolio in 2022, it’s not a bad idea to trade out lower growth potential for greater stability.
2. Blue-chip dividends can keep you invested
Blue-chip stocks don’t have to pay dividends, but many do. Even better, some blue chips have a history of raising their dividend annually. This gives you two ways to earn: stock price appreciation and rising dividend income.
Dividend yields from your blue-chip companies won’t be huge, of course. The norm is usually 0.50% to 3%. You can see this in the table below, which shows dividend yields and years of consecutive dividend increases for six popular blue-chip dividend stocks.
Consecutive Years of Dividend Increases
Johnson & Johnson
JPMorgan Chase & Co.
If the stock market were to crash in 2022, you’ll be thankful for your dividend income. When your stocks are losing value across the board, that dividend income may be the only thing that keeps you invested — when all your instincts are urging you to sell. And staying invested is the most reliable way to limit timing losses in a downturn.
3. Blue chips are easy to own
Most blue-chip companies have staying power. That means you can buy them and hold them in your portfolio for decades.
Blue-chip stocks are not immune to failure, however. General Motors, General Electric, and Lehman Brothers were once considered good, strong companies. General Motors filed for bankruptcy in 2009. General Electric was hit hard by the 2008 financial crisis and was removed from the Dow Jones Industrial Average in 2018. And Lehman Brothers famously failed in 2008.
These failures happen. Blue-chip stocks are among the safest stocks you can buy, but they don’t eliminate the need for basic risk-management strategies.
Remember to diversify and monitor your holdings. These are not hard action items, either. You can invest in a blue-chip ETF, for example. And you can casually browse company news and analyst opinions. Trouble brews slowly for blue-chip companies, but you still want to know about it sooner versus later.
Safer stocks for 2022
2022 is not a year to gamble with an overly aggressive portfolio. There are too many uncertainties ahead for the economy and the financial markets, domestically and globally. If you want to hedge your bets, higher exposure to blue-chip stocks may be your solution.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Catherine Brock owns Coca-Cola, JPMorgan Chase, Johnson & Johnson, and Microsoft. The Motley Fool owns and recommends Apple, Microsoft, and Visa. The Motley Fool recommends Johnson & Johnson and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.