NEW YORK ( DailyFinance) -- By now, most small investors know that investing in index funds is frequently superior to owning individual stocks or actively managed mutual funds. It turns out, however, there are several ways to squeeze even better returns out of your capital using unusually constructed index funds. The art of investing is often a paradox. Choosing individual stocks is a game that requires a high degree of skill and knowledge, and most investors simply don't have the aptitude, nor the time to develop it. Even when they do, many buy and sell at the wrong times because of unconscious psychological biases. Buying actively managed funds isn't much better. Research shows that 70% of actively managed mutual funds underperform stock indexes such as the S&P 500 over the long term. That's in part because they charge high management fees, typically 1.5% or more, while index funds, which invest in shares of the entire index such as the S&P or the Russell 1000, charge fees as low as .09%. Those differences really add up over time.
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