Moving past 401(k) paralysis
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Those in the 55-plus category are not all that interested in these funds. For them, the first decision would be to choose between a passive and active strategy and then from there, make individual fund selections according to their asset allocation strategy.

Passive funds mimic market indexes such as the Standard & Poor's 500 or the Wilshire 5000 and generally charge smaller fees and incur lower trading costs than active funds. Actively managed funds attempt to beat their market benchmarks, but often trade excessively and charge higher expense ratios to cover research expenses and the like.

Such highly esteemed folks as Vanguard founder John Bogle and Princeton professor Burton Malkiel have argued persuasively in favor of index funds for the past 30 years or so. Other market pundits also offer compelling evidence.

In a recent column, Jonathan Clements pointed out that U.S. stock funds gained nearly 12 percent a year over the past 25 years vs. 13.5 percent for the S&P 500 index. (A 1.5 percentage point margin of victory is huge. Example: A $1,000 investment in the average stock fund would be worth $17,000 after 25 years, vs. $23,700 for an S&P 500 fund.) Indexing proponent Larry Swedroe regularly writes articles in which he cites statistics that convincingly prove the argument in favor of passive investing.

But at least one recent study offers compelling evidence leading to the opposite conclusion. An article in the October issue of the FPA Journal calls into question the assumptions behind indexing's superiority.

One big gripe: Traditional studies tend to look at a "snapshot in time," which may lead to inconsistent results.

The author, Christopher Carosa, analyzes asset-weighted returns rather than equal-weighted returns of funds, because the former "more accurately reflect the actual behavioral patterns of investors." In other words, the investment returns of funds with more money receive a bigger weighting than funds with less money.

His conclusion: "For investment returns in rolling 12-month periods from January 1975 through June 2004 ... U.S. equity funds have historically beat the S&P 500 roughly two-thirds of the time."

His finding is likely to cause a stir among passive-investing enthusiasts for quite some time.

A recent article by Morningstar, "When index funds go bad," also criticizes looking at snapshots in time without regard to actual patterns of investment.

It begins by making a familiar claim to those who follow indexing: "Vanguard 500, the most popular index fund by far, has generated total returns over the past decade that trump more than two-thirds of actively managed large-cap funds."

But the Morningstar piece goes on to say that the dollar-weighted returns of index funds, which more accurately gauge actual shareholder returns since they reflect actual money flows, are significantly lower than the official returns of index funds.

What to make of it all
There isn't any one right or wrong way to invest. Basically, data can be sliced and diced any number of ways and then interpreted according to one's own rather biased perspective.

I tend to gravitate toward the middle ground when presented with extreme viewpoints, at least in investment matters. So I use a mix of index and active funds. The index funds serve as core holdings, and smaller holdings of active funds will, I hope, enhance returns over time. In fact, a lot of "active" money managers use a similar strategy. If I have a bias, it's toward value stocks.

But investing doesn't have to be a hugely complicated ordeal. In the beginning, you can opt for a one-solution fund, whether that's a balanced fund, a life cycle fund, an asset allocation fund or a target retirement fund. I'm sure you will see at least one of these among your 401(k) options. But if you don't, corner your human resources representative and demand a tutorial. If you're getting on in years, have accumulated some assets and require more sophisticated advice, then learn more about it yourself or seek professional help.

Just make sure you take advantage of your workplace retirement plan. Ultimately, it's there so you can one day reap the rewards of your labors.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

If you have a comment or suggestion about this column, write to Boomer Bucks.