Book Review: Rethinking Investing: A Very Short Guide to Very Long-Term Investing

Rethinking Investing: A Very Short Guide to Very Long-Term Investing. 2025. Charles D. Ellis. John Wiley & Sons, Inc. www.wiley.com

Charles Ellis gores many an ox in just 106 pages in his guidebook for individual investors, Rethinking Investing.

• Active managers will be put off by the author’s recommendation to save money by not hiring them.

• Mutual fund companies will bristle at Ellis’s note that 89% of US funds lagged the S&P 500 over 20 years and that 85%–90% of past winners will lag next time.

• Fixed income professionals will be miffed by his contention that bonds are unneeded in investors’ portfolios because their long-run stabilizing role is fulfilled by home equity and the future value of Social Security benefits.

• Life insurance agents accustomed to the ongoing commissions on whole life policies will not care for Ellis’s embrace of the “buy term and invest the rest” principle.

• Proprietors of golf courses and ski resorts will not appreciate Ellis’s advice to save money by taking up less-expensive pastimes such as hiking and biking.

Ellis, the founder of Greenwich Associates and a prolific author, emphasizes savings because of the huge effect of compounding on even a small increment of initial principal. His target audience of nonprofessional investors is likely to benefit immensely from studying the relevant math. Those calculations amply flesh out the saying, “A penny saved is a penny earned.” That is, incidentally, a paraphrase rather than a direct quotation of Benjamin Franklin, to whom Ellis attributes the adage and who, in turn, paraphrased some earlier writers.

Some readers may initially feel that Ellis gets carried away with advocating frugality in the interest of maximizing retirement savings, such as when he recommends buying only used cars. Not to be outdone, foreword writer Burton Malkiel advocates banking the cash instead of going out once a week to breakfast on a latte and sausage roll. Surely, many will say, high earners can enjoy a few current luxuries without jeopardizing their financial security several decades hence.

Fortunately, readers who go beyond his bullet points will find that Ellis is not in fact inflexible in his prescriptions. He writes, for example, “Of the many ways to save, select the ways that are best for you.” Bond sellers will be gratified to learn that Ellis makes exceptions to his general aversion to their product when it comes to funding known future liabilities, such as college tuition, or generating income during retirement.

Near the end of the book, he even acknowledges that some of his readers may fail to avoid the emotional, irrational behavior he warns against, e.g., selling out at the bottom and overreacting to short-term market changes. He writes, “[I]f you think you need some professional advice, you might investigate the services of a Registered Investment Advisor.” Sticking to his thrifty theme, however, he suggests retaining the RIA at an hourly rate rather than paying a continual percentage-of-assets-based fee.

One particularly useful passage lists reasons why one piece of conventional wisdom, allocating to bonds a percentage equivalent to one’s age, is not suitable for all investors. He notes that a person with substantial wealth may feel capable of weathering a market downturn and therefore perceive no advantage in maintaining such a large concentration in bonds. The notion of a 40-year-old needing a 40% bond component, he points out, also overlooks non-securities financial assets that provide desired stability.

Ellis might have added that older, wealthy individuals who are generating sufficient income from stock dividends may regard themselves as investing on behalf of their children or grandchildren, for whom bond allocations of 70 or 80 percent would be highly inappropriate.

Managers of individuals’ portfolios will do well to read Rethinking Investing, as their clients may at some point confront them with the arguments contained in it. In response to Ellis’s depiction of the near impossibility of beating the index, they might bring up the active share literature. Also, one might challenge the notion that future Social Security benefits provide stability that obviates the need for bonds based on uncertainties regarding Social Security’s ability to make good on its promises.

Reading the book to find out what to expect from clients who get hold of it will not be an onerous task, given Ellis’s colorful prose. For example, he says that one major advantage of index funds is that they are not interesting. As he wryly remarks, no one wants to experience an “interesting” airplane flight.

Elsewhere in the book, Ellis likens index funds and ETFs to dishwashers and indoor plumbing. (They make life easier and free up time for long-term financial planning that would otherwise be spent on frequent investment decisions, wasted effort in his view).

As for any purveyors of golf equipment who are upset by his steering of potential customers into less-costly leisure activities, Ellis provides an update of sorts to his 1975 Financial Analysts Journal article, “Winning a Loser’s Game.” In that classic piece, he applied to investing a lesson drawn from tennis: At least for weekend players, the most fruitful approach is not trying to win points through superb execution, but rather to avoid errors.

In Rethinking Investing, Ellis quotes the legendary Tommy Armour in a similar vein: “The key to success in golf is making fewer bad shots.” It would therefore be incorrect to say that he has no use for the game.