Calling active mutual funds "fat, dumb and happy" as they take in billions in pointless fees from retirement investors, Vanguard Group founder John Bogle predicts the end of the active management industry.

It won't be quick. While passive funds have been drawing away huge amounts of assets over the past few years, they remain solidly in the minority of investment methods. As of Aug. 31, actively managed funds held $9.87 trillion and passive funds were at $3.98 trillion, according to Morningstar.

Change could gather momentum, however, as big brokerage houses launch low-cost alternatives in a bid to chase the trillions in retirement funds expected to roll out of costly company 401(k) plans and into self-directed retirement IRAs.

Many retirement savers are being asked for the first time in their lives to pick a manager, yet the data they have doesn't support selecting an active manager at all. Presented with the facts on how high costs result in de facto lower returns, retirement investors are becoming wise to the illusion of easy stock market profits.

Cash cow

Active mutual funds are in no hurry to change their ways, Bogle argues, preferring instead to milk their clients dry. They appear content to empty their clients' wallets until there are no clients left, Bogle contends.

Active funds seem to be saying, "'We'll shrink, but we'll take a lot of money out of it on the way down, year after year.' That's what a cash cow is," Bogle told Bloomberg Markets magazine in an interview. "In 25 or 30 years, they'll be gone. That seems like an extreme statement, but I think it isn't without possibility."

The complete disappearance of active management is a stretch, I know. Bogle admits as much. But he does have a point about return on investment.

Most retirement investors don't set out to beat Wall Street and don't consider that a reasonable goal. Ask a retirement saver directly and they'll often come up with a completely different frame of reference: When can I retire?

That's the fundamental insight of Bogle and the entire passive investing approach. You don't need to be "one up on Wall Street" to have a perfectly fine retirement plan. In fact, the more you try to achieve the elusive goal of outperformance the further it moves from your grasp.

Discipline

An increasing number of retirement investors understand this conclusion. It isn't that the market is your adversary. Rather, the market is a tool that you use to achieve your real goal, retirement.

Do you need to be in that tiny fraction of investors who manage to beat the market? It won't happen. It doesn't happen even for full-time investing pros who manage billions. Add in active management fees and things get even harder.

You can, however, do better than 90% of investors just by owning a risk-adjusted portfolio of very low-cost index funds. Rebalancing and discipline get the job done, helping you reach your actual goal, retirement, without taking extraordinary risks or paying unnecessarily high fees along the way.