Is It Fine to Keep Buying Blue Chip Stocks with Some Part of Your Salary Every Month?

Many investors wonder if it's advisable to allocate a portion of their monthly salary towards purchasing blue chip stocks with the intention of holding them for many years without selling them. This strategy can be particularly effective when the stocks are selected based on their strong fundamental outlook and historical performance.

Investing in Blue Chip Stocks: A Case Study

To illustrate the potential benefits of this approach, consider an investor who has consistently invested Rs.2,000 each month in five well-known blue chip stocks from 2000 to June 2018, selected from HDFC Bank, ITC, TCS, Asian Paints, and CEAT Ltd. Over an 18-year period that included both bull and bear markets, the total investment amounted to Rs.21.14 lakhs. Let's explore the performance of these stocks.

HDFC Bank

Rs.4.44 lakhs invested in HDFC Bank over the 18-year period has grown to 3,147 shares, valued at Rs.65.56 lakhs (ex-dividend) as of June 2019. Additionally, the investor has received a total dividend of Rs.3.03 lakhs during this period, which is significantly higher than the initial investment.

ITC

Rs.4.44 lakhs invested in ITC has produced 10,431 shares, valued at Rs.27.65 lakhs (ex-dividend) as of June 2019. The dividend received over the 18-year period is Rs.10.13 lakhs, more than double the initial investment amount. Moreover, the dividends have consistently outpaced the dividends received from other investments.

Asian Paints

Rs.4.44 lakhs invested in Asian Paints has resulted in 6,472 shares worth Rs.82.07 lakhs (ex-dividend) as of June 2019. The dividends received over the 18-year period have been around Rs.15.03 lakhs, which is more than three times the initial investment.

CEAT Ltd.

Rs.3.84 lakhs invested in CEAT Ltd. from 2002 has grown to 4,137 shares, valued at Rs.54.81 lakhs (ex-dividend) as of June 2019. The dividends received over the 18-year period have been around Rs.2.34 lakhs, adding value to the investment.

TCS

Rs.3.98 lakhs invested in TCS from 2002 has resulted in 1,868 shares worth Rs.33.82 lakhs (ex-dividend) as of June 2019. The dividends received over the 18-year period are approximately Rs.5.86 lakhs, which is more than the initial investment.

Total Investment and Returns

By saving Rs.10,000 monthly, the investor now has Rs.26.3 crores in their portfolio, having received Rs.36.41 lakhs as dividends. Even the dividends received are significantly more than the initial investment, showcasing the power of consistent and strategic long-term investing.

Market Considerations and Cautionary Advice

It's important to note that there is no guarantee that past performance will repeat. While HDFC Bank, TCS, Asian Paints, and other blue chip stocks are fundamentally strong, the market can still fluctuate. As of June 2019, the market was bearish, indicating that current conditions might not be favorable for immediate gains.

Therefore, it is crucial to take advice from a financial advisor before embarking on any investment strategy. A financial advisor can provide personalized advice based on your specific financial situation, risk tolerance, and investment goals.

In summary, the consistent purchase of blue chip stocks can be a highly effective long-term investment strategy. However, it's essential to remain vigilant, consult with a financial advisor, and be prepared for potential market fluctuations.