To become an expert at trading one needs to know the difference between stocks and he/she must know the pros and cons of stocks they are dealing in. This is highly important as understanding different stock categories help investors to make better decisions and also minimize their risks.
Companies with a high market capitalization are considered to be blue-chip stocks. In their industry or area, they have a lengthy history of consistently producing reliable income and being leaders. While on the other hand, Penny stocks are extremely uncertain securities with an equity value of less than $5. But highly popular with fast scorer stockholders who prefer more volatile stocks.
Even though some penny stocks are traded on significant exchanges, the majority of them are traded on the OTCQB, a middle-tier over-the-counter (OTC) market for American equities run by OTC Markets Group. So it’s a constant battle of preference and circumstances that lead inventors to ponder from time to time whether they should go for penny stock or blue chips.
Blue Chip Vs Penny Stock: Long-Term Returns
Blue Chip Stocks:
For the last 5-10 years these stocks have had a great history of profits. Companies that keep making money consistently and safely are considered shielded and are better than awfully persistent money washouts.
Blue Chip also gives investors a chance to experience a safety plus point in the highly unstable money markets. The best blue chip stocks are a major attraction for stockholders as they give a modest ratio of stock price to per-share earnings.
As a result, steady growth in annual dividend yields paves the way for long-term and promising growth, which can be seen to remain stable in the future as well.
Penny Stock:
Penny stocks’ price may seem right outwardly but inwardly, they have many risks attached to them, and they provide low long-term returns/profits.
After all, it is challenging to create a new and successful business. Selling stocks to the public as a successful company is significantly simple and less expensive. This is the reason why there are more bad penny stocks than good ones in the long-run history of penny stocks.
These stocks also have low trading volumes, and their price volatility makes them handy for manipulation more than any other stocks on the trade market. This is the reason investment frauds are also most common in penny stocks. They lack long-term as well as time-to-time regulation and as easy as it is to start a business of these it is also not safer in long term.
Blue Chip Vs Penny Stock: Paying Dividends
Blue Chip Stocks:
These stocks offer both capital growth and regular income from dividends. Dividends will still be paid no matter how the prices fluctuate over time, and even ignorant of the fact how the price of the fundamental underlying stock rises.
After years or decades, no matter how you add up the profit levels of the dividends, you will find them to be in higher revenues and also with capital gains against any taxes.
Penny Stocks:
This is also an interesting but truthful fact that penny stocks due to their high volatility have extremely rare dividend paybacks.
Blue Chip Vs Penny Stock 5 Major Differences
1. Blue Chip Stocks are established by well-reputed firms while penny stocks are brought up by newly established firms
Well-run history, full of remarkable breakthroughs, financial stability, and capability to rule the world; major giant firms all around the world who have these qualities are all blue chip stockholders. These companies are also extremely see-through in the way of their dealings and day-to-day transfers.
While penny stocks come from new and established firms that are still establishing their foothold. Sometimes these stocks may be from suspicious firms and putting the credibility of these stocks as a whole in a questionable state
2. Blue Stocks Are Expensive while Penny Stocks Are Inexpensive
Blue stocks require higher amounts of capital so that they can be invested in as they are expensive stickers.
On the other hand, penny stocks are bought with a lesser amount of money. Thousands can be bought at a cheaper price. This is one point that many investors are lured toward buying penny stocks because of their low cost.
3. Blue Chip Stocks have reputable records while Penny Stocks have unpredictable records
Blue stock firms offer stocks to the public which are proven to have stability and higher capital growth and promise future value with a trustworthy reputation. Penny stocks on the contrary are highly unpredictable and risky making their records not to be trustworthy.
Investors should be mindful of the fact that how much risk they can handle and then choose the stock accordingly. If they are in a position of very less risk, going for penny stocks can make them end up in a horrible situation.
They should be careful not to hold onto penny stocks for long due to their highly volatile trait.
4. The Extraordinary difference between Blue Chip Stocks and Penny Stocks in Double Time
The best blue chip stock companies are the ones that have been in the run for the last 5-10 years successfully and have a stable record. This is also a safer method to invest in such companies because they are experienced and have a higher level of security in the all-time fluctuating stock market.
Penny Stocks may have attractive prices but they lack the fact of being safer in the longer run. In addition to this, they also have another backlash they can be manipulated and have risks of scams laid on them. Over time, some penny stocks even have no regulation, making them even worse to trust.
5. Liquidity difference between Blue Chip Stocks and Penny Stocks
Blue Chip stocks accommodate most of the markets’ significant value of trades being traded on most of the exchanges. While Penny Stocks have less liquidity, low trading volumes and selling them is not a big challenge. Any major ups and downs in the stock market sweep away penny stocks off of their feet but can not move blue chip stocks to a level of risk.
Blue Chip Vs Penny Stock: Likelihood of Success
Blue Chip Stocks:
The best stocks promise you long-lasting profitable returns with stability against the market odds.
They might be expensive but they have value as well. The companies that hold blue chip stocks have the advantage of sailing through uncertainties without any hurdles. This has been proven in extremely uncertain pandemic times. They go bulletproof in bad times and when good times are back they give spectacular profits.
Penny Stocks:
Always at the uncertainty of risks and getting entangled in market instability leading to loss.
No matter how attractive they seem they always have the downtime of a significant loss to them due to their easy liquidity.
That is the reason they are always found at companies launching new software trying to make a breakthrough with unstable roots and materialistic technologies unknown to the world before. This even multiplies the risk factor and makes the future of these stocks questionable in terms of revenues.
FAQs
Are blue chip stocks worth it?
These stocks are particularly popular in stable companies that have a history of remarkable revenues. Expensive but also stable, trustworthy against market odds, and having steady growth these factors make them worth it. The best choice if you are looking for long-term financial stability in your stocks.
Is blue chip stock a high investment?
Due to their risk-tolerant behavior, they are also expensive in terms of investment. They are not foolproof but their history of resistance against all market odds is what makes them reputable and has earned them a name in the stock market.
What is considered a blue chip stock?
A huge company with extraordinary revenue records, stable functionality, and regulated functions is considered a blue chip stock. These are financially stable companies that have run for a long time and have years of unmatched reputable presence.
What is the difference between a blue chip stock and a growth stock?
Blue chip stocks pay their dividends to investors in a steady manner. On the other hand, growth stocks do not pay off their dividends to investors.
Bottom Line
If you are comfortable with taking risks and do not care about your revenues in the long run, you can opt for penny stocks. But if you are not ready to set your shoes on fire then you should opt for blue chip stocks so that you can enjoy long-term benefits out of your expensive investment safely.
You also must have the right skills to estimate the stability of the stocks you are about to buy and have a keen eye on whether or not these stocks will hold up your future revenues. In this way, your whole portfolio will be protected from losses.
Now, you can decide upon all the differences between penny stocks and blue chip stocks that are best for you. At the end of the day, it’s up to you how you choose to branch out your money in the stock market.
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