In part one of this note to young investors, I set out the reasons why I think young investors should steer clear of index funds and instead invest in high-quality, growing companies.  So, the question is: how to find and invest in these companies? Well, one obvious way is to invest in these companies directly.

If you’re a younger investor, you’ve likely heard about – and even possibly invested in – index funds, whose promoters argue it’s easier, cheaper, and wiser to stick to investing in broad benchmarks such as the S&P/ASX100 or 200. How do index funds work?