Consuelo Mack has long admired the expertise of Rebalance Investment Committee Member Charley Ellis, frequently featuring him on her acclaimed show, WealthTrack. Charley’s insights on investing and retirement planning have shaped the way countless individuals think about their financial futures. So, when he released his latest book, Rethinking Investing, Consuelo knew it was a must-discuss topic and invited him back to share his wisdom with her audience.
In their conversation, Charley outlined the core principles of Rethinking Investing—a simple, practical approach that cuts through complexity and helps investors focus on what really drives long-term success. He emphasized the same fundamentals that guide Rebalance’s investment philosophy: disciplined saving, low-cost investing, and avoiding common behavioral mistakes that can derail financial plans.
For Consuelo and her viewers, this episode was a valuable deep dive into the kind of smart, research-backed investing that Rebalance champions. Charley’s decades of experience and his ability to make investing both accessible and actionable made for an enlightening discussion.
Transcript
Charley Ellis: If being an active manager today doesn’t work, what do you do about that wonderful solution? Simple solution, index, and if you index, you get all kinds of advantages.
Consuelo Mack: The essence of Charley Ellis’ financial advice is on Consuelo Mack WEALTHTRACK,
Announcer: Funding provided by ClearBridge investments, the Fairholme Foundation, First Eagle investments, Bill Miller, Baird, strategas, Asset Management Research Affiliates, Royce Investment Partners, Seafarer Capital Partners and women investing in security and education.
Consuelo Mack: Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. Over the years, I’ve had the privilege of interviewing the man Money Magazine once called the wisest man on Wall Street. He was a WealthTrack exclusive when we launched 20 years ago, and is again today. He is Charles Ellis Charley, to everyone who knows him. Over his 60 plus year career, he founded and ran Greenwich Associates, the then leading investment consultant to major investment firms, institutions and governments. He was an influential board member of Yale’s endowment, advising its legendary head, David Swensen. He has taught advanced investment courses at both Yale and Harvard, and he has written 22 books. The most famous winning the losers game is an investment classic now in its eighth edition. In 2022 he did investors a huge favor by publishing figuring it out 60 years of answering investors’ most important questions. It’s a collection of some of his most thoughtful and thought provoking articles and essays, many challenging Wall Street’s conventional wisdom. Correctly. As it turns out, you can see my interviews about both books and all of Ellis’ appearances on wealthtrack.com Well, I thought with figuring it out, that Charley had pretty much summed up his decades of financial advice in one volume. Happily, I was wrong. He just published a new book rethinking investing, a very short guide to very long term investing. It is indeed short, 100 pages, and it contains the essence of Ellis’ experience, observations and advice for investing. I asked Ellis why. 21 books in he wrote, rethinking investing.
Charley Ellis: Well, a couple of different reasons. Consuelo. The most important is that things have been changing and changing and changing, and now it’s possible to bring everything all together. The second is, I’ve always wanted to try to figure out, what could people do that would be really helpful to them, and then convert that understanding into written form, usually a book. There’s this wonderful feeling, My Lord, it’s all coming together. There is a good answer. One of the titles that I’ve seriously considered was Eureka, because all of a sudden I realized all the different component parts fit together and they make for a whole and it doesn’t take very long to explain it. And that’s kind of a nice advantage when you can tell the real story in less than 100 pages, and much of it is quite entertaining, text and understanding. So I very hopeful that many people say, Thank goodness you hang in there one more round and get that book done during your time on this earth. Because at 87 you got to realize time is running short.
Consuelo Mack: I think there is a eureka moment for whomever reads the book Charley, so having followed your career and the many books that you’ve written over the years, and you know, quite a few investment classics, I didn’t think that you could possibly distill your wisdom, investment wisdom and experience any more than you already had, but, but you have
Charley Ellis: It’s only because the world has made it possible, for me to see the different component parts increasingly fitting together just right.
Consuelo Mack: So when you say the world has made it possible, what are you talking about? And then I’m actually going to have us go through some of the basics in the chapters of rethinking investing.
Charley Ellis: Start with Mike bloomberg’s Wonderful Bloomberg systems. And those devices can give you any information you want in any relationship to any other information, anytime you want it. Are all over the world. There are hundreds of 1000s of Bloomberg terminals, and then the Internet brings people together instantaneously, again worldwide. So you get some terrific technological changes that have taken place, and then you get regulatory changes that have taken place, the big one being regulation. FD, for fair disclosure, which is. That any publicly listed company cannot give information to one investor and not make conscientious efforts to get that same information to everyone. Result is that everybody knows everything that anybody else knows, and that really breaks things down and makes them increasingly equal in the last component part is it used to be most of the trading, over 90% of trading, was done by individuals who had no access to research and naturally made all kinds of mistakes all the time. And if you had access to information, it was pretty darn easy to beat the market. Now everybody knows everything at the same time, 90% of trading, little over 90% of trading is done by expert professionals, and they know a lot of the same information. They’ve all got fabulous computing power, and they all are very intensive, hard working people, because the compensation is terrific, but only for those who are winners. And the result is there’s ferocious competition to get the right price. That makes the old way of doing things really, really hard, which is why 85 to 90% of actively managed mutual funds fall short of their own chosen objective over the long term, over and over and over again, that data keeps coming in and saying, being an active manager today doesn’t work. What do you do about that wonderful solution? Simple solution, index, and if you index, you get all kinds of advantages.
Consuelo Mack: That’s one of your chapters. Is your great gifts, index funds and ETFs. So explain what great gifts they are. For individual investors,
Charley Ellis: You can be very sure that over the long term, if you use ETFs or index funds, you’ll be in the top quartile, which is the traditional objective of all investment committees and all investment managers, so that if you can be in the top quartile, just like that, that’s pretty wonderful. Second thing is, taxes are lower, not bad. It’s not a big deal, but it’s a nice increment. And operating costs are lower. And then, if you think about it just for a minute, what is the best thing about index funds? It’s that they’re boring. Now, nobody thinks that you really ought to have an investment that’s boring. But the fact of the matter is, when you fly an airplane, you would like the flight to be boring. And when you’re thinking about the plumbing system in your home, you’d like it to be boring. Actually, boring can be really quite good. And in the case of index funds, it’s really great, because documentation that behavioral economists then you start with Daniel kahneman’s wonderful book, Thinking Fast, thinking slow. There are dozens of ways in which we as human beings, systematically and predictably make serious mistakes that are not helpful to our investment results. And the only study that’s been done recently is a DALBAR study that shows that the average investor loses 200 basis points. That’s 2% every average year. Somewhere around 80% of us believe we’re above average. But that doesn’t make it true. It just means that that’s what we like to believe.
Consuelo Mack: But when we’re talking about behavioral economics and you, which is one of your chapters, this is what you’re talking about, avoiding the pitfalls that individuals make that diminish their returns. So that’s such an one of the important aspects to successful investing, right?
Charley Ellis: Yes, it is. But you know, we all grow up with our parents telling us, don’t pick at the scab. It’ll cure faster if you just leave it alone. And the same thing is true of index funds. Leave investing alone and let it grind on ahead, and you’re very likely to be way ahead of where you otherwise would be.
Consuelo Mack: Everybody talks about long term investing, but you’re talking about very long term investing with an emphasis on very so talk to us about one’s investment time horizon.
Charley Ellis: Well, the Internal Revenue Service says, from a tax point of view, long term is six months and 10 days. Fine, but why would we as individuals who start investing in our 20s and are still investing in our 70s and 80s. Why would we think that six months is a good measure of what is long term and the long term? Long term is a different realm, different environment, and when you think about investing. Investing for 60 years. Shouldn’t you think differently, and shouldn’t you have a plan that fits to you and your characteristics and your aspirations for the long, long term? And let me just give the obvious example. I’m very much in favor of equity investing. I am not in favor of bond investing, and most of us actually do more fixed income investing than we think. For an example, if you just say, what’s your portfolio like, somebody will say, Well, I’ve got 40% in bonds and 60% in stocks. Yeah, actually, what is your total financial portfolio? What’s that look like? Well, you know, you’ve got Social Security benefits coming your way. If you took the present value of those benefits, what would it be? And you think, well, future saving is definitely something I could do. Fine. What would be the amount of saving that you could do? What’s the present value, and what’s the present value of the equity in your home, but we’re not going to sell the home we live there, I know, but someday someone in your family will decide that they don’t want to live there and they do want to sell it. So it’s an asset, and you might as well include it when you start to include those other securities assets, the ratio that looked like it was 40 or 50% and 30% in bonds, leaps up to 6070, 80% in bond and bond equivalents. And the reason we own bonds at all is to stabilize the assets so that we get more consistent flow coming out of the portfolio when we need to have it for spending during our retirement years. There’s an alternative, and it’s really pretty straightforward. Have a spending rule that averages the asset value over. Call it 10 years. Do it for eight years. If you really want to keep it simple, go for six years. Do it on your birthday every year, or the first of the year, or your wedding anniversary, or any other date that’s easy to remember, then doing the math wouldn’t take more than half an hour to do the calculations and use that as a stabilizing base, so that you don’t mind the fact that stocks go up and stocks Go down, you don’t need to stabilize the balance sheet. What you want to have is this is more consistent, more stable flow of money for spending during retirement. Wow. Does that make a big difference with almost no effort required,
Consuelo Mack: That’s very much an endowment approach, right?
Charley Ellis: Well, I’m very definitely a creature of endowment. I spent 17 years on David swensen’s Investment Committee at Yale, mostly his chair, which was a nice discipline, and the chance to watch a master at work, day in, day out, day in, day out, you can’t help but learn a great great deal, and much of it can be transferred away from large institutions who can do all kinds of clever stuff with hedge funds and private equity, real estate, the like, over to individuals using just index funds. You still want to have that disciplined approach to what is your purpose? What is your time horizon? What are you trying to accomplish? And then aim for a strategy that will take you there over the long, long term. And remember, it is a long, long, long term. Use it. It’s the biggest advantage you could possibly have time.
Consuelo Mack: Which brings me to a couple of other chapters. Number one, the first chapter is compounding, and time your great power curve opportunity. So talk to us about that great power curve opportunity.
Charley Ellis: Like everybody else who finally gets the message on compounding, I find it thrilling, and you can do the numbers in your head. 124, 816, 3260, 428, okay, what’s the biggest part of that compounding? The last part? It’s what Warren Buffett calls the snowball. And it’s true, you just get more and more and more by hanging in there and letting time do its magic.
Consuelo Mack: Where is the best place for individuals to compound their returns?
Charley Ellis: Well, the best returns available are the easiest to get, and that’s through equity index funds and ETFs and then time, just let the time go buy and go buy and go buy and it works wonders. And almost anybody who sits down and pencils out what the consequences of compounding would be. Just for quick simplification, if you assume that the equity markets, on average, over the long term, Will. Return 7% then, using the rule of 72 at an a set interest rate, how many years does it take to double? Or a set number of years, what interest rate does it take to double? Take the 7% divide that into 72 round it off if you want two to 10 every 10 years doubles. So in 10 years it doubles. In 20 years, it doubles again. In 30 years, it doubles again. In 40 years, it doubles again. And we’re nowhere near the 60 years that most people have. Then in 50 years it doubles, and then in 60 years it doubles, and all you have to do is leave it alone and let it compound. And the best way to compound, obviously, is equities. Bonds don’t have the return, so bonds don’t compound as fast.
Consuelo Mack: And Charley, speaking of you know, compounding, you need something to compound, as you just informed us, and equities are the best way to do it. Chapter Two is saving your first priority,
Charley Ellis: You can’t invest what you haven’t got, and the best way to get something is to earn it and save it. And most of us look at saving in terms of the money that we save. At the moment we save it, which is fine, but the real power of that money is not in how much you put aside and call as savings in your 20s, 30s, 40s and 50s. It’s what you do with that money, and if you let it stay invested and let it compound, what was one becomes two, what was two becomes four, what was four becomes eight. What was eight becomes 16, and then Katie bar the door. It just keeps going and going, and it really there’s nothing like having money working for you to make more money.
Consuelo Mack: And I know there’s an attitude that you have, and you said it’s kind of a fun thing in previous conversations, is instead of saving being depriving you of spending on something that you might enjoy. You always, you kind of turned it around and saying that it’s, it’s actually enhancing your ability to buy something later. It’s just delayed gratification, right? You can, you can turn it into a positive, as opposed to a sacrifice.
Charley Ellis: It’s a big positive. And everybody who’s ever really done it knows darn well. Saving is an enormously beneficial, satisfying and it can be a very nice personal experience if you pay attention to what you’re doing and why you’re doing it, if you take a positive attitude towards saving, you can really enjoy the process quite a great deal.
Consuelo Mack: The last chapter in the book is your personal investment plan. So it is very personal.
Charley Ellis: Money does tend to be very personal, and it is particularly personal when it affects you and your spouse and your children, which it almost always does, then there’s nothing wrong with some serious thinking about who are you, what are you trying to accomplish, and what is available to you. That makes sense over the long term.
Consuelo Mack: This sounds like very much a book for people who have time to invest. If you don’t have
Charley Ellis: Any time investing is the last thing you’re going to be concerned about. You don’t on your way to the morgue. You don’t worry about investing. Now, the reality is that most people plan to live longer than they probably will, so maybe that makes some sense. But almost every individual has either children or spouse or grandchildren that they’re thinking about investing, and those people, particularly grandchildren, have a lot of time and they don’t know how to use it. So as an adult with some experience, it’s a great opportunity to help your family really understand the long term.
Consuelo Mack: Another one of the other chapters is about something that we’ve talked about a great deal on WealthTrack and certainly have with you, and that’s deferring Social Security benefits and also working longer. And you are a prime example of someone who is working longer, and I’m getting to be a prime example as well. So talk to us about those two possibilities.
Charley Ellis: Well, first of all, I’m not a normal human being in the sense of having a normal job. I love the work that I do. Candidly, I’d probably do it just the way I do it, if it weren’t paid at all. But it does get paid quite nicely. So I’m very comfortable earning a living on a regular basis, but let’s assume for a minute that you had ordinary kind of working situation. You come to 62 and you can claim Social Security. My strongest view is unless. You’ve got heavy duty physical labor in your job, or in some other way, it really difficult for you stay at work, because if you wait until 70 and a half to claim your Social Security, how much do you get? Increased day after day after day, year after year, your increase is 76% inflation protected, right? It’s incredible. It’s a marvelous benefit. Now if, if you’ve got reason to think you’re going to die young, you’d be in a different class, and you ought to be realistic about that. But otherwise, particularly if you’re in a reasonably enjoyable line of work and doesn’t require enormous physical stress or danger, working is candidly good for us as human beings because it keeps us engaged and productive and useful, that it’s also good for us financially because of the payoff on Social Security. And if you happen to have a 401 k plan, and you keep cranking it out, you’re going to make that 401 k plan larger and larger at the one time in your life, that is your 60s, when it’s relatively easy to save because you own the house. You own most of your clothes. Kids have graduated from college a whole bunch of different things that are big expenses for most people turn out to be finished. You’ve done it, congratulations. But now is a wonderful time to be able to say more. Put it into your 401 k plan and that combination of higher social security than better payouts from your 401, K can change the last years of life from kind of difficult to kind of wonderful.
Consuelo Mack: Charley what about having, you know, some sort of a stash of cash for rainy days, for to take advantage of opportunities when the market goes down. You don’t subscribe to that particular allocation
Charley Ellis: For individuals of regular competence, on up to people who are in the top 80% of capability, but not the top 20, maybe not the top 10, maybe not the top two or three, but for some huge fraction of investing public like me, it doesn’t make any sense to hold cash, because behavioral economists will tell us over and over and over again, we make mistakes by trying to do something like that. We get excited when we shouldn’t, we get scared when we shouldn’t. We make decisions that we shouldn’t make, and worse than that, we’re predictable in our making mistakes.
Consuelo Mack: One Investment for a long term diversified portfolio. And again, this is a diversified portfolio I’m talking about, what would you add to a long term diversified portfolio? Which should we all own some of
Charley Ellis: Index fund of your choice, or ETF? Either one your choice, probably a slight benefit to the ETFs, because you don’t pay the tax until the ETF gets sold. And if you hold it for the long, long, long run, which you should then you’d just be wonderfully better off low cost index funds and low cost ETFs will do anybody an enormous amount of good over the alternatives.
Consuelo Mack: Charley Ellis, what a treat to talk to you once again on WealthTrack about yet another wonderful book. This one your 22nd rethinking investing, a very short guide, which it is indeed to very long term investing. Thank you, Charley. And congratulations on this book. It’s definitely going to be a classic.
Charley Ellis: Thanks, Consuelo.
Consuelo Mack: At the close of every WealthTrack, we try to give you one suggestion to help you build and protect your wealth over the long term. This week’s Action Point is an easy one. It is read rethinking investing, a very short guide to very long term investing by Charley Ellis. First of all, anything that Charley Ellis writes is worth reading. Two of my favorites out of his 22 books are his acknowledged classic, winning the losers game, now in its eighth edition, and his more recent, figuring it out 60 years of answering investors’ most important questions. You can see my interviews with him about both books on wealthtrack.com but for the short course on Ellis’ wisdom rethinking investing takes the prize, as you just heard, in approximately 100 pages, you can read the essence of his decades of analysis, research, observations and experience working with the best investors of the last half century and figuring out what works and what doesn’t for individual investors. Rethinking investing is the best guide to long term investing that I have ever read in its simplicity and effectiveness. His lifetime of experience can make a lifetime difference to anyone who reads it next week, Social Security guru Mary Beth Franklin gives us a realistic assessment of the retirement plan’s health find out how worried or reassured we should be in this week’s extra feature, Charley Ellis explains what keeps him motivated to work and write books at 87 prepare to be inspired. Please follow us on Facebook, x and our YouTube channel. Thank you for watching. Have a refreshing Presidents’ Day weekend and make the Week ahead a healthy, profitable and productive one you you.
