What is a blue-chip index?
A blue-chip index tracks the performance of blue chip companies – corporations that are renowned for their reliability and quality. Blue-chip companies are popular with investors and so blue-chip indices are typically found on large and significant stock indices.
Where have you heard about blue-chip indexes?
One of the most famous blue-chip indices is the Dow Jones Industrial Average. This index tracks 30 major blue-chip companies in the US, including Apple, General Electric and Walt Disney.
What you need to know about blue-chip indexes.
The term ‘blue chip’ is taken from poker, where blue chips are highest in value. Blue-chip indices basically measure how well the most financially stable and well established companies are doing – they are usually the leaders in their industries.
Blue-chip companies play a significant role in the economy and can be an influencer for economic strength. As a result, blue-chip indices are widely followed and their performance is regularly reported in financial news. They are seen to be low risk and with low volatility.
This also makes them popular with investors. Buying shares in an exchange-traded fund or index fund that tracks a blue-chip index can allow investors to gain accesses to these coveted blue-chip stocks, which can otherwise be difficult to reach.