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Step 1
Understand that mutual-fund companies generally invest in a mix of stocks, then professionally manage the portolio. The fund operates on money provided by individual investors.
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Step 2
Know that mutual-fund company charges investors fees for managing the portfolio, even though many funds underperform the market over time.
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Step 3
Gauge the performance of the market by studying market indexes such as the Russell 2000 or the Standard & Poor's 500. These indexes show the combined performance of hundreds of stocks over time.
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Step 4
Know that an index fund is a mutual fund that invests in stock that mirror particular index such as the S&P 500 or Russell 2000. The funds are designed to perform as the market performs.
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Step 5
Gather information about various stock indexes. The Russell 2000 consists of small-cap stocks; the S&P 500 consists of large-cap stocks. The Nasdaq also has several indexes.
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Step 6
Find out which mutual-fund companies offer index funds. Magazines such as Money, Kiplinger's and Smart Money regularly run lists of mutual-fund companies.
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Step 7
Compare how much the companies charge in management fees for their index funds.
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Step 8
Remember that management fees for an index fund should be low. The company has no tough investment decisions to make.








