The Elements of Investing

Seize control of your financial future with rock-solid advice from two of the world’s leading investment experts

Investors today are bombarded with conflicting advice about how to handle the increasingly volatile stock market. From pronouncements of the “death of diversification” to the supposed virtues of crypto, investors can be forgiven for being thoroughly confused.

It’s time to return to the basics. In the 10th Anniversary Edition of The Elements of Investing: Easy Lessons for Every Investor, investment legends Burton G. Malkiel and Charles D. Ellis deliver straightforward, digestible lessons in the investment rules and principles you need to follow to mitigate risk and realize long-term success in the markets.

Divided into six essential elements of investing, this concise book will teach you how to:

• Focus on the long-term and ignore short-term market fluctuations and movements
• Use employer-sponsored plans to supercharge your savings and returns and minimize your taxes
• Understand crucial investment subjects, like diversification, rebalancing, dollar-cost averaging, and indexing

So, forget the flavor of the week. Stick with the timeless and invaluable advice followed by the world’s most successful retail investors.

Preface to Anniversary Edition xi

Foreword to Original Edition xv

Foreword to the Anniversary Edition xix

Introduction xxi

It All Starts with Saving 1

I. Save 3

First Do No Harm 5

Start Saving Early: Time is Money 6

The Amazing Rule of 72 7

Savvy Savings 11

Small Savings Tips 14

Big Ways to Save 15

Let the Government Help You Save 17

Own Your Home 18

How Do I Catch Up? 19

II. Index 23

Nobody Knows More Than the Market 24

The Index Fund Solution 27

Don’t Some Beat the Market? 29

Index Bonds 33

Index Internationally 34

Index Funds Have Big Advantages 36

One Warning 37

Confession 39

III. Diversify 41

Diversify Across Asset Classes 43

Diversify Across Markets 46

Diversify Over Time 47

Rebalance 51

IV. Avoid Blunders 57

Overconfidence 59

Beware of Mr. Market 61

The Penalty of Timing 65

More Mistakes 66

Minimize Costs 67

V. Keep It Simple 71

Review of Basic Rules 72

Asset Allocation 79

Asset Allocation Ranges 81

Investing in Retirement 85

Getting Specific 86

VI. Timeless Lessons for Troubled Times 95

Volatility and Dollar-Cost Averaging 97

Diversification is Still a Time-Honored Strategy to Reduce Risk 99

Rebalancing 101

Diversification and Rebalancing Together 103

Index at Least the Core of Your Portfolio 104

Fine-Tuning a Bond Diversification Strategy 107

A Final Thought 111

A Super Simple Summary: KISS Investing 113

Appendix: Save on Taxes Legally 115

Individual Retirement Accounts (IRAs) 115

Roth IRAs 117

Pension Plans 118

Tax-Advantaged Saving for Education 120

Recommended Reading 123

Acknowledgments 125

About the Authors 127

Index 129

BURTON G. MALKIEL is the Chemical BankChairman’s Professor of Economics Emeritus at Princeton University and the author of the bestselling A Random Walk Down Wall Street. Malkiel has served on the President’s Council of Economic Advisers, as dean of the Yale School of Management, as chair of Princeton’s Economics Department, and as a director of major corporations. He is currently the Chief Investment Officer of Wealthfront.

CHARLES D. ELLIS is a consultant to large public and private institutional investors. For three decades, he was managing partner of Greenwich Associates, the international business strategy consulting firm. He has taught investing at both Harvard and Yale and is the author of seventeen books, including the bestselling Winning the Loser’s Game.

Praise for THE ELEMENTS OF INVESTING

“A common misperception is that successful investing requires a ton of money, a complicated portfolio, or a detailed understanding of where the markets are headed next. The truth is, sometimes the simplest approach is the toughest to beat. Charley Ellis and Burt Malkiel do a masterful job in The Elements of Investing of laying out clear, simple rules that any investor can follow to grow their wealth over time.

—TIM BUCKLEY, Vanguard Chairman & CEO

“These noted authors have distilled all you need to know about investing into a very small package. The best time to read this book is when you turn eighteen (or maybe thirteen) and every year thereafter.”

—HARRY MARKOWITZ, Nobel Laureate in Economics 1990

“Struggling to find money to save? Befuddled by the bewildering array of investment choices? As you venture into the financial markets for the first time, it’s helpful to have a trusted guide—and, in Charley Ellis and Burt Malkiel, you have two of the finest.”

—Jonathan Clements, author of The Little Book of Main Street Money

“No one knows more about investing than Charley Ellis and Burt Malkiel, and no one has written a better investment guide. These are the best basic rules of investing by two of the world’s greatest financial thinkers.”

—CONSUELO MACK, Anchor and Managing Editor, Consuelo Mack WealthTrack