Is there a mutual fund that specifically includes blue chip stocks?
I would like to invest in stocks that provide diversification, since I am a beginner. I would like to start off with at least $5,000 for my initial investment. I want to see if investing in few blue chip individual stocks or mutual funds is considered a great choice.
First of all, I do not like the term "Blue Chip" stock. The implication is that somehow that stock is safer, or a better investment, than other stocks. At one time, maybe this was true, but in today's rapidly changing economy, no single company can offer the kind of "widows and orphans" safety that people used to associate with stocks like IBM (a shadow of its former self), General Motors (declared bankruptcy), and the like. With that out of the way, I would recommend that investors who want to invest in large US companies may want to purchase an S&P 500 index fund. By owning 500 of the largest companies in the US, you reduce the risk that you choose a stinker, while capturing all of the returns of the market. Keep in mind that you should not invest in stocks at all unless a) you can tolerate fluctuations in your investment value and b) you don't need the money for the next 5 years at least.
I congratulate you on your plans to begin investing and suspect that you have a long horizon for doing so. With that said, I agree that investing in stocks in what you should be doing. But when investing in stocks unless you are prepared to do so with a diversification of at least a dozen and probably twice that many, I don't think this is the best possible choice. As a beginning step, that's not practical. Even so, let me answer your question first and then make a suggestion
Yes, there are a number of funds that specifically include blue chip stocks. They include Fidelity Blue Chip Growth Fund, T. Rowe Price Blue Chip Growth Fund, Vanguard U.S. Growth Fund, as well as exchange-traded funds such as iShares Russell 1000 Growth and Vanguard Russell 1000 Growth. These are all focused on the U.S. market. What I must point out is that the U.S. market is rather richly valued at the moment and is, to some extent, trading higher in expectation of the possibility of reduced taxes. That change may be delayed or may not happen.
Although the U.S. market has had an extended rebound from the depths of the 2008-9 plunge, international markets have recovered far more slowly and represent better value. For that reason and since you would be in the early phases of investing, I think you would be far better served by looking at VT, Vanguard's Total World exchange-traded fund. With this one holding, you would have broad exposure to stocks in the U.S. and around the world. What's more, you can add to it over time and later on, if you wish, buy some stocks or other funds as well. At this point, however, broad diversification would give you a good starting point and cost-effectiveness.
There are funds that focus on holdings that would fall under the "blue chip" category but beware as that term can cause some confusion. Blue chip status is not a permanant residence. Rather, I would advise you to focus on funds that offer broad diversification focusing on larger, quality companies with longer track records and, preferably, that pay dividends. A broad stock market index with low expenses and fees will be your best choice hands down. Since you are a beginner in both experience and assets individual stocks are not a place you need to be. As you continue to grow it will make sense to branch out but for now keep it simple.
I discourage my clients from owning individual stocks. Over time, most of your returns are going to come from asset allocation, not stock picking. As a CFA charterholder, I believe in fundamental, low-cost investing, so I typically hold broad based ETFs for my clients. If you prefer mutual funds, there are a lot of blue chip mutual funds out there. Compare the mutual funds' costs to ETFs, and you will quickly see the cost saving of using ETFs.
Individual stock investing is where the most money is made in the stock market.
But $5,000 is not enough to start.
Example: $5,000 + 10% per year + 20yrs = $36k <--- That's nothing!
Put that money in a total market ETF to get going. I like Betterment.
Wealth is built by saving a ton first. Save at least $50,000 before buying individual stocks. Then add another $50k. Then another.
How can you add $50k every year? Start a business. Or buy one.
Hope that helps!