It is tempting to chase the next “big” stock, be it a flashy growth stock or a speculative investment idea.
However, for most long-term investors, blue-chip stocks should remain the heart of their well-strategised portfolio.
In Singapore, blue-chip stocks are generally key pillars of the economy.
Established names with solid track records, blue-chip stocks have a stronger ability to weather market cycles while providing steady dividends.
In this piece, let us review why blue-chip stocks deserve their space in a smart investor’s portfolio and how you can incorporate them into your own.
Established businesses
With dominant positions in their industries, blue-chip stocks are established companies that have proven their ability to generate consistent profits.
In Singapore, these companies are deeply embedded in our daily lives.
They include local banking giants DBS Group Holdings (SGX: D05) and United Overseas Bank Ltd (SGX: U11), telecommunications provider Singtel (SGX: Z74), and industrials such as ST Engineering (SGX: S63) and Seatrium (SGX: 5E2).
Regardless of market conditions, these companies operate services that are essential to Singapore.
As they are quality businesses with strong balance sheets, blue chips can typically weather economic slowdowns more effectively.
Dependable income
Blue chips’ ability to deliver reliable income is one of their biggest advantages.
Most of them have a long history of paying dividends, often increasing payouts annually.
For example, Singapore Exchange Limited (SGX: S68) has paid dividends every year without fail going back to at least FY2003 (financial year ended 30 June 2003). Over the past decade from FY2015 to FY2025, its annual dividend has increased steadily from S$0.28 per share to S$0.375 per share. The company also plans to increase its dividend by S$0.0025 per share every quarter from FY2026 to FY2028.
Supported by prudent capital management and strong cash flows, dividends from blue chips tend to be more sustainable.
Dividends from your blue chips can also be reinvested, allowing you to gain from compounding returns.
Over time, the combination of steady dividends, reinvestment compounding, and capital appreciation can increase an investor’s total returns significantly.
Liquidity and accessibility
Blue-chip stocks on the Singapore Exchange tend to have high trading volumes and lower bid-ask spreads, allowing investors to buy and sell shares easily.
Should the investor need cash quickly, they can liquidate these stocks more quickly.
These stocks also have regular disclosures, making them more transparent and allowing for easier due diligence and monitoring.
Risk management
Blue chips also act as a risk-mitigating factor in a broader investment portfolio.
As they are generally less volatile than growth stocks, blue-chips in your portfolio can smooth overall volatility and provide a buffer during downturns.
These stocks can form the base on which your higher-growth and more speculative positions can be built upon.
Building a core blue-chip portfolio
A smart investment portfolio cannot rely only on blue chips.
Instead, a hybrid portfolio of blue chips and growth stocks is preferred.
Using the 80/20 approach, 80% of your portfolio will be invested in blue-chip stocks while the other 20% will be focused on growth stocks.
Using blue chips to anchor your portfolio, you get steady income even during market downturns.
These stocks will also help smooth market volatility brought forth by growth stocks.
The 20% growth portion allows you to join in emerging trends and invest in innovative sectors that offer the potential of higher returns.
Get Smart: Build on a strong foundation
Investing is not about chasing the trendiest stocks.
The smartest investors build on a strong foundation that gives consistent returns, remains resilient during bad times, and compounds wealth effectively.
Anchoring your investment portfolio with blue chips and complementing it with selective growth stocks can help you create a balanced strategy that aids in long-term success.
Many Singapore stocks fall behind inflation, which means your money quietly loses strength over time. Dividend stocks have a very different track record. Some continued delivering 6% to 13% every year across the toughest market conditions.
In this FREE report, discover 5 crisis-tested dividend stocks that kept rewarding investors while the market struggled. Download your dividend investing guide now.
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Disclosure: Wenting does not own shares in any of the companies mentioned.
