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Investors flocking into index funds—here's why

In addition to all the usual dilemmas over where to put money, investors have been in a heated debate over how to invest.

Specifically, the debate between active versus passive management has only heated up as more investors put their money into index funds and eschew the stock-picking strategy.

NYSE New York Stock Exchange traders markets
Lucas Jackson | Reuters

Tom Lydon, president of Global Trends Investments and editor of ETFTrends.com, thinks investors will continue to prefer exchange-traded funds, most of which are passively managed and track broad indexes like the S&P 500 and the Nasdaq.

ETFs have taken in a net $159.2 billion in 2014, bringing the total under management to $1.92 trillion, in a year that has seen total inflows rise nearly 13 percent, according to XTF.com. Mutual funds, meanwhile, have lost 2.5 percent over the past 12 months, according to the Investment Company Institute.

In a conversation at the Charles Schwab IMPACT conference with CNBC.com Finance Editor Jeff Cox, Lydon explains why he thinks investors will continue to favor ETFs, and where they will be putting their money.

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