Active investing, otherwise known as stock picking is a trillion dollar industry that just doesn't work.  Millions entrust their money to "financial gurus" who use their superior insight and analysis to find the best stocks and generate the best returns.  In the process, they also charge you a fee. 

It's long been known that active investing does not work.  Sure, an investor may get lucky for a stretch and outperform the market but in the end, everyone reverts back to the mean. Don't believe me?  Look at what happened to Bill Miller, until last year considered one of the best stock pickers.

Below is a chart that shows the performance of Miller's Legg Mason Value Trust fund versus the S&P 500.  The fund outperformed the broader market every year from 1991 to 2005, a run that no other manager can match.  The last couple of years have not been so kind.  

Losses over the last year have wiped out the last ten years of gains.  The WSJ reports that:

"A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion, according to Morningstar Inc. Value Trust's investors have lost 58% of their money over the past year, 20 percentage points worse than the decline on the Standard & Poor's 500 stock index.

These losses have wiped away Value Trust's years of market-beating performance. The fund is now among the worst-performing in its class for the last one-, three-, five- and 10-year periods, according to Morningstar."

Investing money in an actively managed fund is a bad idea for two reasons:

1. The funds over the long run do not outperform broad indexed like the S&P 500.

2. You are paying extra for an "expert" to choose stocks to buy.  This fee reduces also works to reduce your return.

So, what's a better way to invest when you are ready to put money into the market?  Index funds which can be traded as mutual funds or ETFs.  Vanguard has become the largest mutual fund company in the world because of its low fee, index oriented approach.  Exchange Traded Funds (ETFs) can be bought and sold that mimic the performance of major indexes.  They also have very low expenses.  The most popular ETFs are SPY (mimics the S&P 500) and QQQQ (mimics the top 100 Nasdaq stocks).  There are now ETFs that track bond markets, commodities, and more.  The key is to choose a fund that has a low expense ratio and tracks a broad market.