Blue chips are large, well managed companies that have a long history of giving good dividends to their shareholders. They are usually the companies that are selected to form the stock market index. Examples of blue chip shares in Singapore are Singapore Airlines, the three local banks, Singapore Press Holdings, SMRT, Singtel, Starhub, the large property companies and shipyards.
In the past, the asset mangers expect a yield of 7% to 10% on these blue chip shares. If a small investor were to buy into the shares at the market price, the expected yield is at this level, comprising of dividend (around 3%) and capital appreciation. There is volatility, i.e. the share price can go up or down by a large margin, but over the long term, this is averaged out to give a yield of expected long term yield.
Some blue chip shares can go bust, but the risk is much lower than the speculative or smaller shares in the stock market. You can diversify the risk by investing in an exchange traded fund (such as the STI ETF). In other countries, you can invest in an indexed fund (i.e. a unit trust that is invested in the stocks comprising the stock market index) but this is not available in Singapore.
Read the FAQ about investing in blue chip shares in www.tankinlian.com (Ask Mr. Tan)
Tan Kin Lian