You know it, and the news confirms it; even market mavens have been handed big losses this last year. These guys are professionals; they went to school for this, work in the trenches every day and they still can’t get it right. Not only have the rank of file of the investment world chalked up loses this year, but the rock stars of investment are licking their wounds too. Warren Buffet, considered the greatest investor of all time, and the second richest person in the world had to admit that last year was one of the worse he has seen. So what can the average person do? Is it safe to invest in stocks on your own?

Yes, you cannot only play the market, you can beat it!

I’m not talking about buying stocks with the rent money or day trading. Pull those stunts at your own risk. Pay your bills, contribute the maximum to your 401K that your company will match (it’s free money!) and then if you have a little left over use that to invest in stocks.

Believe it or not, you are one lucky character. This is a great time to invest in stocks. Imagine yourself in a giant store where almost everything is on sale. That’s the market these days. Bears (people who think the market will go down) and short sellers (people who invest their money in hopes stocks go lower) have had their way for a long time. Quality institutions have had their prices slashed and are sitting in the bargain bin. All you have to do pick through the rubble and find some good ones.

So how do we invest in stocks of good companies? It’s not as hard as you think.

• Look for a company that sells a quality product, actually has income (believe it or not some companies don’t make money) and pays a dividend. The dividend is a percentage of the stock price the company will pay you annually or quarterly for owning their stock. It’s like interest.
• Find a company that has good management. Google the CEO or President of the company and see what they are up to. Where else have they worked? How did the company do while they were at the helm?
• Read the company’s last three annual reports. It’s not as bad as you think and they will tell you how they did and how they think they will do. Match one year to the next to see if they are full of it or not. Also make sure that their sales and income are growing year to year. If the company is constantly buying other companies to show growth then steer clear.
• Find a company that has a strong competitive advantage. By competitive advantage I mean something that makes this company better than its competitors. For example, McDonalds has the competitive advantage of being the biggest and best known fast food restaurant in the world. Burger King will not be able to take this from them no matter how many Whoppers they sell.

If your mind is spinning from these guidelines on how to invest in stocks, or you’re starting to hyperventilate because it all seems too difficult there is a solution. Put your head between your legs so you don’t pass out on me, and let’s take a look at ETFs.

Exchange Traded Funds, or ETFs, are great for people who don’t have the time, patience or inclination to pick individual stocks. They are funds that are bought and sold like stocks but they track the progress of a group of stocks. For example, you think oil is going to up over the next couple of years; you can buy an oil ETF and reap the gains of many oil companies.

If you don’t want to invest in stocks, but want to put some money in the market I suggest an ETF that tracks the S&P 500 or Dow Jones Industrial Average. These are the two major indexes which people look at to see how the market is doing. By buying these ETFs you are buying a representation of the markets. When they go up, your stock goes up. It’s a painless and easy way to get your money in the market.

To maximize your returns, I suggest contributing to your 401K, put some money in savings and then invest in stocks with any extra cash you have. Markets are at multi-year lows, so whether you buy individual stocks or ETFs you are going to be sitting pretty in the long run.