Index Funds or Managed Mutual Funds?

Question:

I have a question regarding index funds and managed mutual funds. I have always invested in index funds. I have a Roth IRA in Vanguard 500 index. I was wondering what opinion do any of you have of index vs. mamaged mutual funds. I heard to always invest in index funds because of the low expenses, but I know that some managed mutual funds beat the index funds. What would be some good no load manged funds to invest in that would beat the indexes. I looked at Dodge and Cox, but there funds are closed to new investors. Does anyone know of any good ones out there with low expenses and that charge no loads. Thanks

One advisor's response:

I think that as long as you follow your investments and review on at least an annual basis (preferably more), then you'll do better in managed funds. Index funds are great for the investor who doesn't have time to research funds and evaluate the best managed funds.

My Response:

I'll put what the previous poster said in a different way:

Most people cause problems with their investment accounts by trying to time the market and/or squeeze that extra point of yield by changing allocation. The real winners in investing have 1) discipline to continue adding to their accounts over time; 2) a diversified allocation plan geared to their risk tolerance; 3) a strategy to adjust and rebalance that allocation plan over the arc of their life cycle; and 4) the understanding that Rome wasn't built in a day, and that patience is one of their primary tools that they must apply.

Regarding the development of a diversified allocation plan, the simpler the better, in my opinion. Notice that I said "development of a diversified allocation plan", not "choosing which funds to invest in". Boring old index funds and ETFs are just fine, but some folks prefer managed funds. Go for it, if you wish, but remember that the items I listed above are every bit as important as fund choices, if not more so.