Index funds are designed to return whatever index they follow, minus fees. They will probably be more tax efficient, because they only sell or buy when they index changes. But they will never beat the market. If you want to buy it and forget it, an index may be your best bet. In my opinion, they are ideal for difficult markets like Emerging Markets, where you just can't get enough information.

Managed funds will attempt to beat the market. You want to look at who the manager is, and the time frame they've been on that fund, as manager tenure can have an effect on your historic returns. Buy the manager, not the fund. Look at their turnover, which is how much selling they do. High turnover is tax INefficient, in that the gains are short-term.

It is possible to beat the market, but it takes an awful lot of work. I never did my own investing while I was working. I was all funds then.

The best thing you can do at your age is to work on your Asset Allocation (what percentage you want in stocks, bonds, cash). Asset Allocation, in my opinion, is even more important than your actual investments. Most any firm you can use (Merrill Lynch, Vanguard, Fidelity, etc) will have questionnaires designed to help you decide on your correct Asset Allocation.

Or you can just use a Target fund. Based on your retirement age, Target funds automatically adjust between stocks, bonds, etc. Target funds are Funds of Funds; they usually hold several index funds, and shift assets between them. You can look to see how they break down the asset allocation, and that can give you an indication of what you might aim for.

Beyond that, control your costs. Vanguard is the low-cost leader. They've held that lead many years. Costs is the one thing, beyond asset allocation, you can control. Look at your front or back end loads. Those fees you pay up front when you buy, or in back, when you sell. Go for no-load, if at all possible. For me to want to pay, that fund better be absolutely outstanding!

Bonds, always use funds. You just don't have enough money to buy individual bonds. And you don't have enough money to be able to diversify. Bond funds are what most people should use.

I probably have half my money in individual stocks right now, the other half in stock and bond funds, and cash. This last year, though, as I sell stocks, I've been putting it into bond funds, or just leaving it in cash. It just takes so much time paying attention to individual stocks, and funds are just so much easier! Most of my funds are managed, either with Vanguard or American. And right now, I'm sitting on alot of cash (just like alot of other people!).

Asset Allocation.
Control your costs.
Bond funds.
That's the basics.
Good Luck, Mr. Right!

j8a