Business revolutions often have inauspicious beginnings. Wireless pioneer Marconi saw the radio as a way of advancing long distance ship-to-shore communication. The Internet was conceived as a small network promoting the sharing of supercomputers among researchers. The mutual fund company Vanguard introduced the first Standard & Poor's 500 equity index fund for retail investors in August 1976. Wall Street turned a cold eye to a fund based on the heretical concept of simply matching—not beating—the market.

Yet good ideas win out. A majority of actively managed stock funds have failed to keep pace with the S&P 500 index, especially during the great bull market of the 1990s. Index funds now account for some 12 percent of America's equity market. As William Miller, a portfolio manager at Legg Mason, once put it: "The S&P 500 is a wonderful thing to put your money in. If somebody said, 'I've got a fund here with a really low cost, that's tax efficient, with a 15- to 20-year record of beating almost everybody,' why wouldn't you own it." Why not indeed?

Still, many money managers said during the '90s that index funds would get their comeuppance when the good times ended. For one thing, bear markets are tailor made for stock-pickers. The pros can ditch poorly performing stocks and snap up companies with better prospects. Plus, index funds must stay fully invested in the stock market, while active managers can shore up their portfolios with valuable cash during troubled times.

This thesis got a test last year, and index funds got a passing grade. As anyone with a 401(k) plan knows, the stock market had a dismal 2001. Large cap equity index funds did not escape the carnage, with an average one-year return of -12 percent. But the comparable return for actively managed mutual funds was -14 percent. Of course, index funds did not shine in all categories. For instance, small cap stock pickers did well against the traditional market benchmarks.

Now, I know that index funds are boring. There's no reason to watch the financial news seeking to find the next Warren Buffett or troll through chat rooms looking for hot stock tips. But the amateur investor in index funds will do better than most Masters of the Universe—and that's not bad at all.