So how’s that index fund doing for you now?  With stocks essentially treading water with levels seen many years ago, those that invested in index funds have essentially lost money if you take into account inflation.

This year, index fund investors are staring are viewing an absolute train wreck.  Many don’t even bother to open statements at a time when doing so should be a call to action.  There has simply been no better time to get away from a failed strategy.

Stop investing in index funds, please.  Talk about an absolute fraud.  Those firms selling index funds offer minimal value cloaked under the guise of the white knight riding to rescue you from the evils of Wall Street.

Don’t pay a broker or advisor to manage your money.  We the index fund company know for a fact that you cannot beat the market.  Why pay high fees trying?  Instead, pay us a tidy fee for buying stocks in lock step with some random index.

Seriously does anyone else have a problem with this approach?  Why investors plow millions of dollars into this white flag of surrender strategy is beyond my comprehension.

Perhaps I am too much of a simpleton.  Honestly, I just do not get it.  Heck, using darts to select stocks may very well perform better than index investing.

During this recent crisis I have been quite critical of another failed strategy called buy and hold investing.  My complaint there was mostly of an industry inherently biased towards not selling stocks no matter the benefits of limited trading and reallocation of portfolios based on the business cycle or significant crisis.

My critique of index investing goes much deeper.  While there are clearly benefits of using a buy and hold strategy in many circumstances the same cannot be said of index investing.

About the only positive thing to be said about index investing is that it beats putting the money under a mattress.  Beyond that there just is nothing good to say about the strategy.

Those proponents of the approach include some famous names like industry founder John Bogle.  His Vanguard 500 Index Fund was launched in 1975 under the influence of academic experts who believed that over the long term, investors could not do better than the market. (See also: "5 Vanguard Funds to Sell Now.")

According to Bogle why pay huge fees to managers that claim to beat the market, but rarely do.  To him the advice being given from Wall Street was not worth the price paid.  Instead…

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…why not simply own the market as defined by the stocks listed in the S&P 500 index and by doing so pay a much lower fee.

Brilliant, but not for the reasons you think.  Despite the admirable aspects of this little endeavor, the real reason for launching the fund was nothing more than a marketing gimmick.

It was a darn good one.  At the time of launching his fund, Wall Street charged exorbitant fees for customers to buy stocks.  Professional managers were thought to be untouchable.

Along comes Bogle with his bag of tricks and historical facts from academic research.  A new industry was born.  Bogle’s sole goal was to gather assets and lots of them.  By focusing on lower fees and yet delivering market returns, he could not lose. (See also: "9 Simple Steps to Profiting at Vanguard.")

There will always be a segment of any marketplace that will be quite receptive to lower fees and that is certainly the case here.  Unfortunately, his basic premise is a myth. As a result those that follow indexing miss out on opportunities to build real wealth through consistent out performance.

If you assume that the average market return is 8% per annum, a portfolio of $100,000 grows to approximately $450,000 over a 20 year period.  Beat that number by just 3% per year and your portfolio grows to $800,000.

That is a huge disparity that cannot be ignored.  Of course the difficulty is identifying the manager that can deliver that 3% out performance on a consistent basis.  If you listen to Bogle, those managers simply do not exist.

That is a fallacy.  While it is true that the majority of advisors fail in this regard, there are always outliers that can and do deliver huge returns on a consistent basis.  Or you can do-it-yourself using tools like those found here at InvestorPlace.

The point is you can beat the market and that doing so is well worth the effort.  Settling for market returns is simply waving the white flag of surrender.  Index funds were born out of a desire to build a business that offered mediocrity with lower fees.

Bogle is a rich man as a result.  I wish I could say the same for those following his groundbreaking approach, but I cannot.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.