Risk and Return: Blue Chip Stocks vs Growth Companies

One of the things you might want to consider is the relative safety of different types of investments. This is especially true if you’re a first-time investor.

Take for example: For a long time, IBM ($IBM) was considered the premier stock to own because it was the most consistent performer. In more recent years, however, Apple ($AAPL) has emerged as one of the most easily recognized and respectable companies. We call companies like these “blue chips” and generally think of them as being able to survive an economic downturn and consistently grow in value.

Blue Chips: Shares of an established, financially stable company with a well-established product or service.

On the other hand, small companies and companies with new unknown products can offer larger percentage gains but also carry a significant risk of losing value. Such companies are often referred to as “growth stocks”.

Growth Stocks: Shares of newly traded companies showing earnings growth and expected to generate higher profits quickly in a particular industry.

As a rule, you need to take greater risks to get higher returns, while the least risky investments generally have the lowest returns. Whether you choose to take aggressive risk or be risk averse is up to you. Just make sure you pick an investment strategy that fits your financial situation and your goals.

In our further chapters, we'll expand more on different stock categories and different investment strategies you can take.