#1 You can get the market return with no effort. It is VERY hard to consistently beat the market. Read A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing to get an appreciation for how hard it is, and how many professional money managers fail to beat the market. What about picking individual stocks? Even if you are the next Warren Buffett you need ½ million to invest to make it worth your time.
#2 Index Funds make investing simple- they remove the guess work of which stock to buy or which managed fund will beat the market this year. You decide on an asset allocation and then buy the lowest cost funds to give you that allocation.
#3 Index funds have very low costs. Managing an index is pretty easy- just buy all the stocks in the index. No reach department or stock analysts required. Vanguard has funds with expense ratios as low as 0.07%. Actively managed funds have higher expenses, usually 1% or more. That might not seem like much, but the higher costs drain away a lot of your investment returns because 1% is a huge difference when compounding over many years.
#4 Easy Diversification, you can buy virtually the entire stock market when you buy a share of VTI. This ensures you will never lose 95% of your investment due to a bad pick- it would take the end of the world for that to happen to the entire market.
#5 You don’t have to watch index funds like a hawk, index funds will always match their index. Actively managed funds could change drastically- especially if they change fund managers.
#6 Tax efficiency- Because the index won’t change much year after year index funds typically don’t need to sell much of their holdings. That means less realized taxable income – which is important if you are holding an index funds outside of a tax sheltered account.