The Elements of Investing by Burton Malkiel & Charles Ellis

The Elements of Investing by Burton G. Malkiel and Charles D. Ellis lays out a straightforward, evidence-based approach to building wealth through investing. They emphasize simplicity, low-cost index funds, and long-term discipline over market timing or complex strategies. By breaking down investment principles into clear, actionable steps, they make it accessible for anyone seeking steady financial growth.

Save

Empowerment from intentional decisions, not deprivation
Return doesn’t matter if you have nothing to invest
Someone with $50,000 salary can retire faster than $500,000 salary
Minimizing taxes leaves more capital to compound
Wealth is built slowly and reliably through compound interest
Rule of 72
- 72 ÷ rate of return = years to double your money
- 10% return → money doubles in ~7.2 years
- ~16x growth in about 28 years

Index

Use low-cost index funds as the primary investment vehicle
- Clear plan → easier to stay on the path
- Reduces anxiety and eliminates stock-picking mistakes
- Recommended by Warren Buffett
Advantages
- Indexing has beat the vast majority of active managers
- Over 15 years, 90%+ of active funds fall short of their benchmark
- Tax-efficient → low turnover, fewer capital gains & taxable events
- Simple → no need to analyze individual stocks or managers
- Can provide automatic diversification (hundreds of stocks)

Diversify

Diversification is essential for reducing risk
Rebalancing keeps your allocation aligned with your goals
- Doesn’t always increase returns, but lowers risk
- Requires discipline and consistency
- Avoid reacting emotionally to market changes

Avoid Blunders

Behavior > Market
- You are the most important factor in your investment success
- Primary goal = survive long enough for compounding to work
- Minimize big mistakes → maximize long-term outcomes
Common Investor Mistakes
- Overconfidence
- Following the herd
- Timing the market
- Stock picking
- Pattern illusion