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Are You Really Better Off With an Index Fund?

In this video, author Jack Schwager tells us that to him, investing in individual stocks is best for those who have a real passion for digging deep into a company, and understanding what's really driving it. If that describes you, then The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." Grab a free copy for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Brendan Byrnes: For individual investors; I know you advocate for a lot of individual investors, if not most, index fund is probably your best bet, and I agree with that.

How about the investor that's really passionate about it, really digs into a stock -- a Ford, Apple -- he knows everything about them, he thinks they're undervalued. Do you think that still index funds are the best way, or do you think at that point, does the individual need to go with their gut there?

Jack Schwager: That's a really great point. That's a really perfect question, because I think people really should categorize themselves on one of two sides.

If you're really not prepared to do a lot of work, if you don't have the passion, if you don't feel you have, really, an edge in a market, then you're really better off just going into an index fund. Don't go to a mutual fund, just go into an index fund. That's your best bet, and preferably after the indexes have done lousy and people hate stocks.

If, however, as you said, you have a passion and you do your work, then I think you should make your own choices. For the most part, people who have that type of feeling about the markets, and are willing to put that type of work in will, on balance, probably do better if they have that type of seriousness.

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