Charles Ellis On Index Revolution

An exclusive interview with Financial Thought Leader, consultant and author Charles Ellis on why investing in low cost, passive index funds, not actively managed ones is the best choice for most individual investors.

Charles Ellis On Index Revolution

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The evidence is pretty compelling: 83% of actively managed U.S. mutual funds underperformed the market over the last decade. 86% of European funds did so.

Morningstar Investment Conference: Using Annuities In A Portfolio For Added Stability

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Investors are taking note. As a recent article in the Financial Times titled Actively Failing” put it: “Clients are shifting en masse to index based funds.”

Index tracking funds now account for 40% of the $9 trillion in U.S. stock mutual funds and exchange traded funds. And the shift is accelerating. In whatMorningstar dubs “Flowmageddon”, over the last 12 months, investors have pulled $308 billion out of actively managed mutual funds and poured $375 billion into passive mutual funds and ETFs.

Are we at a tipping point in the shift from active to passive?   Is this really in the best interests of investors? Do they really understand the risks and rewards of going passive?

A recent survey of affluent to high-net-worth individual investors found that more than three-quarters agree that index funds and ETFs are a cheaper way to invest, but 71% also believe they are less risky.  That assumption is questionable.

As the survey’s sponsor, investment firm Natixis Global Asset Management points out: “…since 1928, investors in the S&P 500 have experienced a 10% correction more than once per year and a 5% decline more than three times per year on average.”

Although the Dow, the S&P 500 and the NASDAQ all hit new highs today (the first time all 3 major indexes have done so on the same day since 1999), the stock market does fluctuate, and at any given time it is at risk of declining.  This week’s guest is a globally recognized Financial Thought Leader, who has appeared exclusively on WEALTHTRACK over the years.

He is Charles Ellis, a leading consultant and advisor to institutional investors,  endowments, governments and high-net-worth individuals for more than five decades.  Founder of Greenwich Associates, a leading international business and investment strategy consulting firm which he ran for 30 years, Ellis has been studying how investment firms work throughout his career.  He is the author of 17 books, including the investment classic, Winning the Loser’s Game, soon to be in its 7th edition. His most recent work is: The Index Revolution: Why Investors Should Join It Now. In this week’s interview, I asked Ellis why the vast majority of actively managed stock funds are now lagging the market, a trend that has become much more pronounced in recent decades.

If you can’t join us for the show on public television this week, you can always watch it on our website over the weekend.  In our exclusive web EXTRA feature, Ellis explains why, having traveled the world, he is so optimistic about the future.

You can also connect with us on Facebook or Twitter.  As always, we welcome your feedback on everything we are doing.

Thanks for watching.  Have a great weekend and make the week ahead a profitable and productive one.

Best regards,

Consuelo

Charles Ellis – Spend Some Time & Carefully Think About Who You Are & What Your Reality Is

Reality Check

  • What is your reality?
  • What are you trying to do for yourself and your family?
  • What’s your savings plan?
  • How long is your investment horizon?
  • Can you handle market fluctuations without freaking out?

Index Revolution

Buy a broadly diversified, low-cost index fund.

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Charles Ellis from the WEALTHTRACK Archives.