How to Invest in the Brands You Know

I'm a fan of Google. I'm hooked on Apple's iPhone. And I love that Dannon yogurt, thanks to its low-cal version that still tastes like the real thing.

But who would've ever thought that the brands I know and love could pay me back?

For a while now, I've been on a mission to teach people how to get smart about the stock market and their 401(k) accounts. So I decided to dig a little deeper and see if my theory about quality brands having a better portfolio performance holds water.

I have to tell you: I was pretty shocked by the numbers.

It turns out America's Top 100 Brands (as ranked by Business Week and InterBrand) would have generated a 31% return from 2000 through 2008, while the S&P 500 left you with losses to the tune of 28%.

What does this mean to your portfolio? If you had invested $10,000 in the S&P 500 during this period, you would've had a loss of $2,810; your portfolio would've dropped to just $7,190 in value.

But if you invested $10,000 in America's Top 100 brands, you would've gained $3,140 (enough to buy a year's worth of groceries, according to the Census Bureau), bringing your portfolio to $13,140.

What's interesting is that, when we look at the top 10 performers of the 100 brands, just about all are companies you probably know quite well. Take a look:

What's also worth noting about the study is that the top 100 brands include names like AIG (down 97.67%), Citi (down 77.21%), Merrill Lynch (down 67.31%) and Ford (down 90.31%).

What can we take away from this?

First, brands perform well because companies tend to reinvest in those brands and deliver what their customers want.

Second, quality brands tend to be less volatile than other companies. The study showed that the volatility for the S&P 500 during the final year (and the most volatile of the nine years) was 57.71% vs. 52.85%.

Not a big difference, but still comforting in these volatile times.

Third, even with their dramatic drops, consumers could have seen a higher return overall had they invested in "what they know."

Finally, if you, as an investor or first-timer, simply use the insights you already have - by listening, watching, and talking to others - can make smarter decisions about your 401(k), your job, and your life.

By the way, as one would expect with the financial crisis of 2008, financials were the worst performing group.

They were far outpaced by sports, autos (largely due to Volkswagen), and food and drink.

For more trading strategies, go to TradingMarkets.com/reports.