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Keep calm and carry on when investing in Blue Chip Stocks
ASX investors may be experiencing a great deal of fear, but the last thing you should do is panic. Under the Radar Report's Blue Chip stock motto is to Keep Calm Carry On. This Blue Chip stock motto worked when the ASX stock market was cratering and at the same time, it works when the ASX stock market is climbing albeit amid a health and economic crisis that isn’t going away any time soon.
Our Blue Chip Stock focus is to grow investments and income
Blue Chip stock investment value philosophy means that although we’re not eliminating ASX stock market risk, what we are doing is providing exposure to companies that might not shoot the lights out; but will give ASX investors protection from volatility. One of the reasons is that Blue Chip stocks has a focus on income, meaning dividends; another is our focus on companies that exhibit stable earnings.
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Risks and reality of investing in Blue Chip stock
Below we go through some of the current fears being talked about and why ASX investors should put them into perspective. The guiding investing principle is that if there is a low probability of something occurring, it is a mistake to construct a ASX share portfolio strategy around that possibility. When a fund manager builds a ASX share portfolio they consider a base case of expectations; and then consider upside and downside risks. This is what Under the Radar Report have done with our Blue Chip Stock ASX share Portfolio, which was covered in our previous issue and can be found on our website. To access our ASX share portfolio, sign up here. If you are a subscriber, please download issue 56.
1. Risk of investing in Blue Chip stocks: Inflation
If the past 10 years is any guide, the major central banks around the world have undershot their inflation targets. In the midst of a global pandemic/recession we would put the probability of rapid inflation at less than 1%.
2. Risk of investing in Blue Chip stocks: Deflation
During the financial crisis a decade ago, deflation didn’t transpire. Inflation doesn’t fall that much and is sticky when it gets to zero. We would put this probability at less than 20% and is not be a part of our base case scenario.
3. Risk of investing in Blue Chip stocks: The Fiscal Cliff
RBA Deputy Governor Guy Debelle said this week that the key support for an economic recovery is fiscal policy. We think that the political and economic pressure is such that initiatives like JobKeeper and JobSeeker will not be wound back precipitously in September. He also said that monetary policy will continue to play an important role of assisting stimulatory efforts.
Risk of investing in Blue Chip stocks: An End To Bank Loan Deferrals
Unlike the financial crisis, the banks are in a much better position in terms of their capital buffers. This point has been made by Debelle and is backed up by comments from the banks themselves. There is more fat in the banking system now to absorb defaults.
A note to ASX investors regarding Blue Chip stocks
It is always good to think about risk, but it’s not productive to overstate the importance of one in a hundred year events when you are looking to build wealth for the long-term. Hope is an investor’s friend too.
To access this week's price targets, sign up here. If you are a subscriber, please download issue 56.