This article is from the How to Start an Investment Program tutorial, author unknown.
In the last few years, Index Funds have become an extremely popular method of investing in the stock market. The reason is simple. Since the early 1980's, investing in an unmanaged fund of representative stocks (i.e., an Index Fund) has produced returns that outgained nearly 75% of professionally managed equity funds in ten out of the last twelve years. As strange as it may sound, the majority of the mutual fund managers cannot achieve, year in and year out, even an average result.
So why look anywhere else? Why doesn't everyone just put their money in the Index Funds? Well, some of us aren't satisfied with just being average. We want to try to achieve a return that's better than those highly overpaid fund managers. But let's not get ahead of ourselves. Index Funds can serve a very useful purpose, depending upon your circumstance.