From Jonathan at My Money Blog (the best personal finance blog I’ve ever read):

Let’s say you have ten open suitcases, each with a different amount of money in them:

Obviously, if you had a choice you’d pick the one with $10,000 in it. But the Banker the closes the suitcases and mixes them all up. He then opens up the $8,000 suitcase. You can still choose any of the suitcases to take home. Which one would you pick?

This is similar to the situation that you are faced with when picking an active vs. passive mutual fund. Over extended periods, approximately 75-85% of actively managed mutual funds fail to match the total market average. Yes, you could pick the $9,000 or $10,000 suitcase, but do you want to take that risk? We should all the take $8,000 happily.

Remember, even picking the active mutual funds with the best 10-year historical returns doesn’t work! For example, the top 35 mutual funds from 1978 to 1987 cumulatively under-performed the stock market average by 7 percent annually the next ten years (data also taken from The Coffeehouse Investor.)

I’ve followed this path with my own retirement savings for several years. Virtually everything in my 403(b) (just like a 401(k), but for nonprofits) retirement account is in a stock index pegged to the Russell 3000 Index (the Russell 3000 represents about 98% of the US market).

Also on My Money Blog:
:: How to Make Money From 0% APR Balance Transfers
:: Earn 5%+ APY in a Savings Account