"...Bogle’s math is persuasive.
Bogle described a hypothetical 30-year-old investor who earns $30,000 a year and receives 3% annual raises. If that worker saved 10% of his salary every year in actively managed stock funds, and earned a nominal 7% annual return, he’d have $561,000 at age 70, But if he were to plow the same 10% per year into index funds, he would amass $927,000 – or 65% more.
...Bogle said: “A person saving for retirement who chooses low-cost investments could have a standard of living throughout retirement more than 65% higher than that of a comparable investor in high-cost investments.”
...compared with index funds, actively managed funds also charge higher investment management fees, known as expense ratios. Bogle assumed that those expenses accounted for about one percentage point of the cost difference between actively managed funds and index funds.
There are less obvious costs to active management, too, including the drag on returns when managers hold cash in a rising stock market and the trading costs managers incur when buying and selling stocks to juice returns.
In Bogle’s ideal world, he said, all 401(k) plans would be fully indexed. Standing in the way of that vision are “lobbyists for mutual fund managers and industry associations,” said Bogle, who also recommends that Congress require the mutual fund industry to assume a “fiduciary duty,” on behalf of 401(k) participants. Such a requirement would effectively compel fund managers to keep their fees as low as possible."