The fact is, you have less chance of predicting which funds will beat the index in any given year than you do predicting whether a coin toss will come up heads or tails. Once you accept that there's no crystal ball for predicting the best- performing funds for the next year or the next five years, index funds start to make a lot of sense. But you do know that compared with all the funds that invest in the same market, the index fund will usually end up near the middle of the pack, if not higher. But you never know in advance which will be which. That's why trying to pick the perfect actively managed fund sometimes leaves you with below-average returns.
Indexers benefit from low costs.
The big secret is low cost. Traditional, actively run funds need big research staffs to uncover what they hope will be the most promising stocks. All that brainpower costs money. An index fund, on the other hand, requires no expensive research. That gives a typical index fund a headstart of 11.4 percentage points a year above the competition.