Despite the lofty goals and six-figure salaries of most people on Wall Street, the stock market is not short on get-rich-quick schemes and terrible risks. When you are first starting out, knowing what to pursue – and what to avoid – can be an overwhelming feat.
When stock markets are in recovery from a recent crash or recession, this rapid ascent and then sharp descent of prices can form a bubble. While instincts may drive lots of investors to drive prices up during this time, it almost always ends up popping the bubble.
The nature of bubble stocks and sudden inflation in pricing may appeal to you, but don’t be fooled by any investor or broker who tries to get you to invest right when the bubble is building up. If there’s one thing about bubble stocks, they have the tendency to burst – and the results can be drastic.
Here’s everything you need to know about stock bubbles and how to avoid them.
Stock Market Bubble, Defined
A stock market bubble is described by SmartAsset as a short period of time in which stock prices grow exponentially and then fall. The value grows way beyond its typical value, making eager investors think that it’s a great time to invest. However, the fall is just as quick as the growth, so it’s important to be aware of that.
Being a part of an economic bubble isn’t a bad thing, and can even bring about some profits; however, you must know the warning signs of a bubble about to burst so you can get out of there before any damage is done.
What Makes the Bubble Inflate?
A stock market bubble grows when investors buy stock more quickly than they can sell it. This causes inflation on the purchasing end, which ultimately forces stocks to continue to rise even higher.
Where most stock investors fail, however, is during this time, as there is a lack of analysis and practicality. This leads people to make more greedy decisions, ignoring the ramifications of what could happen if the bubble pops.
What Happens When the Bubble Pops?
This process of buying up tons of stock and inflating prices can only go on for so long. Eventually, something’s going to give. Once investors are able to let go of their greed and remember the practical, applicable ways to invest, they try to immediately cash in on everything they just purchased.
So do all of the other investors who were a part of this bubble. As more people try to sell, the prices of those stocks begin to rapidly fall. The bubble has been popped, and investors who put all into this bubble are straight out of luck.
Avoid a Popping Bubble on Wall Street!
It is very tempting to get in on a bubble since there is seemingly a lot of money to be made upfront. But bubbles tend to pop, and that is when disaster strikes. How can you avoid this disastrous conclusion while building up your Wall Street portfolio?
The answer is simple: diversification. By diversifying your investments, it is not only easier to recoup losses from one singular venture, but it is also easier on your portfolio as a whole. You won’t be doomed to lose everything down a single funnel, and no stock market bubble will have quite the same impact on your overall funds.
What Are Blue-Chip Stocks on Wall Street?
Whether or not you have already sat down with an investor to figure out your first steps towards creating your investment portfolio, you are likely coming in contact with terms and phrases you’ve never heard before. Anybody who is green to Wall Street stock trading is bound to feel overwhelmed by the number of terms and technicalities to figure out.
When you finally do speak with an investor, it won’t be long before you start hearing about blue-chip stocks. Many brokers recommend that you invest in these kinds of stocks in order to build up your portfolio and earn more money in the long run. But what exactly are blue-chip stocks, and why should you be investing in them?
Let’s find out!
What Exactly Are Blue-Chip Stocks?
The origin of the phrase “blue-chip” actually stems from poker language. In a game of poker, with standard chips, the blue chips are worth the highest value. This same definition can be applied to blue-chip stocks on Wall Street. While there is no official singular definition of a blue-chip stock, investors “know them when they see them”.
The blue-chips are the big-time stocks, the ones that come from the biggest companies with the most well-known names, or any stocks that are very high in value and very highly desired. Amazon, Apple, Disney, and McDonald’s are just a few examples of blue-chip stocks. If you’re interested in becoming a trader or just want to work in a bank and make a LOT of money, make sure you check out Wall Street Mastermind Facebook. They’re the best at getting people the kind of jobs everybody is competing for. Only thing is, Sam Shiah, the guy who is the head of this program, knows how to cut your learning curve into half and get you the kind of job offers that you would’ve never dreamed of.
Perhaps a better question to ask would be, what makes a blue-chip stock a blue-chip stock? What sets it apart from the rest? Keep reading to find out more about blue-chip stocks.
Characteristics of Blue Chip Stocks
Any highly sought-after blue-chip stock will have the following traits:
- In a major market index. All blue-chips are part of the biggest stock market indexes, such as the Dow Jones or the Nasdaq 100.
- Major market cap. All blue-chips have a huge market capitalization, which is determined by market cap value (this is explained easily by NerdWallet)
- Lots of dividends. Most blue-chip stocks pay dividends, which are payments made to investors using actual revenue made by the company.
- A huge history of growth. Blue-chips are famous and desire for a reason: it’s because they have been around a while. Not only have they been around, but they’ve been growing for a long time, too.
In other words, blue-chip stocks are the real deal. The big deal. Those coveted stocks that will put you in the big leagues if you can invest in them.
Why You Should Invest in Blue-Chip Stocks
You don’t need to invest in blue-chips in order to find success on Wall Street. However, you can increase your chances of diversification while getting a taste of guaranteed success. One of the greatest things about blue-chips is that any investor, no matter whether they are a risky or conservative investor, will always recommend them as a part of your portfolio. Not to mention, the fact that most of them also pay dividends is a good motivation to start investing.
Find Your Favorite Blue-Chip!
It’s easy to get started with blue-chip stocks. They are huge, well-known, reliable, and always creating cash. Every kind of stock rises and falls, but by sticking with blue-chips over the long run, you are sure to build up a good amount of profit towards your retirement.