Small-Cap Funds Have More Room to Beat the Index

Maybe you could help me with this decision. My 401(k) will make available a small-cap index fund that mimics the Russell 2000 index. I heard you say that indexing is a good way to invest in 401(k) plans. Do you think the small-cap index fund would be a decent choice? It is the only small-cap fund open for consideration. -- Nancy Lingenfelter

A guy with 10 restaurants and a great fried chicken recipe won't get much attention from the financial community. But find his company before everyone on Wall Street does, and you could make a killing.

That's just one of the reasons that actual stock picking tends to work better than indexing in the small-cap world. This corner of the market still has enough great, undiscovered companies that it's possible for an enterprising money manager to do more than just match an index. ...