Consider the oft-criticized mutual fund portfolio manager.

Not only is the manager victimized by market cycles and his or her own stock-picking miscues, but a fund that simply mimics a stock index often delivers better returns.

Displeasure with managerial ability during the market swoon is one reason why investors pulled $221.8 billion out of actively managed stock funds last year, while index funds gained $17.6 billion, according to Lipper Inc.

Not that either type of stock fund has had any bragging rights for some time. Both have disappointed bitterly, sending investors' money into money-market funds and certificates of deposit.

"People have said over the past few years that because actively managed funds have lost money, that's reason to get into index funds," says Russel Kinnel, director of fund research for Morningstar Inc., in Chicago. "But while you can say that, index funds have lost money, too."

Over the past three years, funds based on the Standard & Poor's 500 index produced an average annualized decline of 12.26 percent, according to Lipper. That compares to the annualized decline of 12.96 percent for the average U.S. diversified stock fund.

"There hasn't been a lot of difference in performance between passive and actively managed funds in this down market," says Tom Roseen, senior research analyst with Lipper in Denver. "However, in the bull market from late 2002 to late 2006, index funds outpaced actively managed funds" by about 2 percentage points, 17 percent versus 15 percent.

The ongoing argument over stock index versus actively managed stock funds is unlikely to be resolved. Though stock index funds are rising in popularity, their total assets of $490 billion at year-end lag the $3.2 trillion in actively managed stock funds, according to Lipper.

Investors should know the pros and cons of each and why some experts suggest a combination. Both tend to move in the same general direction during dramatically booming or plummeting stock markets. It is in flat markets that active portfolio managers have the opportunity to distinguish themselves through quality stock picking.

Historically, about one-third of actively managed funds outperform index funds during most market periods, Kinnel says. The trick, of course, is to pick the right ones with staying power.

One advantage of actively managed funds is that they typically have about 4 percent of their assets in cash, while index funds must remain fully invested in stocks. That provides a slight cushion in a down market, Kinnel noted. Index funds also must continue to hold stocks in their least attractive sectors, while actively managed funds can shift their holdings when deemed necessary.

Nonetheless, index funds feature lower expenses and are well-suited to investors who simply wish to go with the flow in their stock investing. So many kinds of stocks are bargain-priced that an eventual market comeback would seem likely to raise any that didn't implode during the recession.

Over the long haul, factors such as the relative expenses of a fund should play an important role in an investor's decision-making process, Roseen says. He believes keeping 50 percent to 60 percent of an individual's stock holdings in an index fund makes sense, while branching into areas such as international might best be done with a fund that is actively managed by someone who really knows those markets well.

But others are dead set against managed funds.

"Few investment managers have shown the ability to outperform their market benchmarks over the long term," says Mark Metcalf, a financial adviser with Merriman Inc., in Seattle. "Anyone can shine for a few years, but very few managers have outperformed in a way that can be attributed to anything other than pure luck."

That's a harsh assessment that Metcalf firmly stands by.

"The compound annual return of our firm's global all-equity index fund strategy over the 10 years from 1999 through 2008 was 4.3 percent after fees—without having to make any predicting," says Metcalf. "That beats two of arguably the best investors of our time in Warren Buffett, who was up 3.3 percent for that period, and Bill Miller, of Legg Mason, who was down 4.2 percent."

Kinnel has recommendations in both index and managed funds.

In index funds, Fidelity Spartan Total Market Index (FSTMX) and Fidelity Spartan International Index (FSIIX) are both "no load" (no sales charge) funds with a 0.10 percent annual expense ratio. Minimum investments in them are $10,000.

In managed funds, he likes Fairholme Fund (FAIRX), which has veteran investor Bruce Berkowitz as its lead manager and an annual expense ratio of 1.01 percent. Kinnel also likes the Dodge & Cox International Stock Fund (DODFX), run by a management team, with a 0.64 percent annual expense ratio. Both are no-load funds with minimum required investments of $2,500.

Metcalf favors a Vanguard index portfolio of Vanguard 500 Index (VFINX) with an annual expense ratio of 0.16 percent, Vanguard Value Index (VIVAX) with a 0.21 percent annual expense ratio, and Vanguard international Value (VTRIX) with a 0.42 percent annual expense ratio. All three are no-load funds requiring a $3,000 minimum initial investment.

"In down markets I like having both kinds of funds," Kinnel says. "A really good active manager can take advantage of the bear market to buy what's best, while index funds will offer broad exposure to the markets for the next 10 years."