Active or Index fund in Vanguard

[aim-high]

Hi,

In 2009, I put 5K in my Roth IRA account with Vanguard. I invested all the money in Vanguard Total Stock Market Index fund. I also have a 401k account and I put all my 401k in Target retirement fund. In 2010, I would like to put another 5K to my Roth IRA account in Vanguard. Should I invest this amount in an index fund again or should I go for Active funds ? With respect to vanguard, I dont see much fees for the actively managed fund as apposed to other institutions (except for expense ratio). Any suggestions on a good active fund with vanguard ?

Thanks

[southerndoc]

If you look at historical returns, active funds rarely beat the performance of index funds, but they charge extra management fees. Those extra fees aren't significant with $5,000, but when your portfolio grows and you've got $100,000 invested in a particular fund, then it could get expensive.

Personally I only do index funds.

[nck4857]

Index, although I have a lot in the Vanguard Retirement Date Funds, because they are a collection of around 5 Index Funds..

[aim-high]

Thanks for the feedback. As a matter of fact, I have heard that Actively managed funds eventhough has got the potential to beat the index funds, the return from them over a long period of time is not as great from index funds.
I was thinking that if I have put 5000 in 2009 in index funds, Should not I diversify my portfolio by going with actively managed fund ?
Is it better to diversify by choosing a different index fund in which the allocation of funds is different from what I already have ? . I have the VTSMX fund which has around 99% allocation in stocks.

[zetta]

Diversifying does not mean choosing between active and index -- it's quite likely that you could end up with two funds with very similar holdings. I would most likely recommend either continuing to contribute to the funds you already hold, or using a Target fund in your ROTH as well.

You need to develop an asset allocation plan to make this decision. Here's a good explanation:
Investment Guide