<prompt> Human: Ive been kicking the idea around to move my investment out of a Ameriprise finacial adviser managed 401k and into some low cost index funds. Im not really seeing my FA produce any significant returns over index funds. Fidelity is the 401k provider at work, they offer index funds. I was thinking Vanguard funds for my IRAs outside of my job. I was wondering, what are the downside risk or pitfalls in index fund investing?  <response>: This stuff is on my actuarial exams.The math behind it is that with sufficient diversity all firm risk goes away and you get the market. Markets go up over time - if they dont, your stock portfolio is likely the least of your worries - buying everything evenly is cheap for the funds, not for you, and it is a winning strategy over the long run.The other posters talk about the glamour of active investing, but beware of gamblers logic. Winners celebrate, losers sulk, and with enough participants you get a Warren Buffet who hits it big.Less than half of the mutual funds beat the market each year after expenses, and none of them do it consistently. Each fund has limited options in their activities - these arent hedge funds - and youre paying salary plus trading expenses in order to participate. The expensive hotshot runs the mutual funds, the intern gets the index fund.If you choose to go the index route, keep in mind that SP 500 isnt the only one. Russell 2000 is the index for medium and small firms and may be available to you. Ultimately, a passive strategy is X in Index Funds and Y in bonds. Dont forget your cash and house, and then as you age you reduce X and increase Y so that you arent screwed if the market tanks when you turn 65.You can get cute with currency diversification if you want, but keep in mind that the SEC is amazing relative to other nations regulators. There is a reason why a Chinese stock gets a bump simply for listing on a US exchange - it certifies that their books arent bullshit.Google Efficient Frontiers and Capital Allocation Lines for further reading.EDIT - Added stuff about the efficient frontier, currency diversification and its implied risk bad local regulation adds risk 