How I did it

An investing guru who wants to rescue your retirement

Charles Ellis, one of the most revered figures in American investing, hates to waste time.

Especially when it comes to an issue over which the clock is ticking: America's retirement crisis. "I didn't know until I sat down and looked at the numbers how serious it could be," he said. "Unless we act soon, millions of retirees will find that they are too old to return to work and have too little in savings. It is a terrible trifecta: old, poor and alone."

Greenwich Associates founder Charles Ellis speaks with a reporter prior to an event in New York.
Daniel Acker | Bloomberg | Getty Images

Ellis has a new book out, "Falling Short: The Coming Retirement Crisis and What To Do About It," which has been reviewed everywhere from The Economist to The New York Review of Books. His Wall Street résumé is a reason why people are taking his leadership on—and dire predictions about—retirement, seriously. Ellis wants to change the frightening trajectory many Americans are on.

Ellis even found some time in recent weeks to rail against the excesses of Wall Street and the inadequate financial reforms that followed the crisis.

All that Ellis has done on the way to becoming an outspoken investing guru and confidante of Vanguard's Jack Bogle can be traced back to 1972, when he founded Greenwich Associates, now one of the world's leading financial industry consultants.

Advising the globe's biggest investors

Ellis founded Greenwich Associates with $3,000 after he left Donaldson, Lufkin & Jenrette and with a small team of 10 people. His goal was to create a financial industry consulting firm that would become a go-to resource for the biggest fund managers and Wall Street firms.

For the first year, he crisscrossed the country, visiting 90 cities, selling his idea of providing benchmarking data to financial services firms about how well they were serving their clients and how firms' compared with each other. His insight was how rarely clients told their professionals what they really thought and how much value he and others like him could bring by doing thoughtful interviews and offering analytics based on them.

The insight proved powerful—Greenwich Associates grew to employ nearly 400 people during Ellis's leadership—but it took a while to get it off the ground.

"Going to bed at midnight, I set the alarm for 4:30 and then I would get up and get going again," he said. "When I flew into a city, I'd get into the taxicab at the airport, and I'd say to the driver: I'm fine. I have not had anything to drink, but I am exhausted. May I lie down on the back seat of your cab, and will you wake me up if I fall asleep?"

About two years after he founded the company, it ran out of cash. "By then, other guys had joined the firm," he said. "I was responsible for them."

Ellis had to borrow against securities owned by his brother to keep the firm afloat. It wasn't the only crisis in the firm's history: The 1987 financial services contraction laid bare the fact that the firm needed to downsize by about 10 percent. The partnership gave employees one month of pay for every year of service. "We said to everyone, this is our fault, not your fault," he said. "Two or three people rejoined the firm later."

Today, Greenwich has six offices spread across the U.S., Europe and Asia, and a client base of more than 250 banks and fund manager firms, plus more than 50,000 corporations and institutions that take part in its research offerings.

Ever rational, he steeled himself to retire when it was time. He'd told his partners he planned to leave in three years but hadn't quite been able to let go. Near his self-appointed departure date, he found himself overruled on a key personnel decision. Swallowing his pride, he let it be known to everyone that he had been overruled and stepped aside.

"The partnership had to come before everything," he said.

Now a counselor to many young people through the courses he still teaches at Yale, Ellis is sometimes asked by students whether they ought to become entrepreneurs. He laughs lightly as he tells this story:

"I look right at them and say: 'Don't do it.' And if they blink, I know I'm right. And if they look like they're going to hit me, I finish the sentence and say ... 'Unless you really want to.'"

"If you can be stopped by someone saying, 'Don't go there, there be dragons,' you won't have the ferocious unrelenting unstoppable attitude it takes to make other people change their behavior."

These days Ellis spends a lot of his time teaching and educating retail investors about the biggest financial challenges they face today. Here's how.

How to avoid a dire retirement

Ellis's latest effort to get Americans to recognize that the retirement crisis is more widespread and serious than most people realize has as its battle cry the just-released book "Falling Short," written with Alicia Munnell and Andrew Eschtruth of the Center for Retirement Research at Boston College. In it, he suggests what needs to be done: restore Social Security with targeted benefit cuts and a small income tax, increase 401(k) savings and reset workers' thinking to account for longer life spans.

He's taken pen to paper before with influential results. In 1975 he wrote "The Loser's Game," which Jack Bogle has cited as a key influence in Vanguard's launch of index investment funds. Over the years, he has advised the managers of some of the largest pools of money in the world, including serving on the board of Vanguard and chairing the Yale Endowment's investment committee. The Wall Street Journal called him an investing legend, and his classic "Winning the Loser's Game" has sold more than a half million copies.

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With the average household savings of people nearing retirement averaging only about $120,000, many people—still caught up in the 1980's idea of the Golden Age of Retirement—may retire believing that they have enough, only to discover they don't.

"If each worker did know all the facts, her or his choice would almost always be to work to 70 so they would enjoy the great freedom of financial security—freedom from want and freedom from financial fear—in the many years of retirement that will lie ahead," he writes.

How to be a successful investor

Having a successful retirement isn't possible without making the right investment decisions, but for Ellis, that's less complex than many Americans might imagine. He is famous for invoking this gem from the classical age philosophy: "Know thyself."

It's the key, according to him, of being a successful investor. "No one is the same," he said. "We all differ on our assets, our history, our interesting in investing, our comfort in investing."

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A master storyteller, he spends a considerable amount of effort coming up with the right metaphors and analogies to help people understand what he sees as the futility of most kinds of active management and stock picking today. A manager can beat the market for a little while, he said, but the landscape is so competitive that his or her skill will quickly be competed away, or his or her fund will grow too large to manage well.

Suggesting a retail investor can invest in the next Apple is like suggesting that you can date a 19-year-old Elizabeth Taylor.

Working as an independent business consultant now, his advice to companies and people centers around helping them understand who they are as investors, and helping them ask for what they want. He likens this to understanding well what colors become you.

"If you ask people whether they would like it if everyone told them they looked great, most of them would have no idea what the magic secret is. The magic secret has nothing to do with what colors you like best; it has only to do with what colors complement your complexion," he said. "You can't change your complexion."

Read MoreRetirement planning isn't just about the money

Like his famous passive-investing cohorts—Bogle and Burt Malkiel, the Princeton economist and now chief investment officer at online adviser Wealthfront—Ellis advises individual investors to stick with an index investment strategy that keeps fees low.

Much of financial services marketing is an illusion. "Suggesting a retail investor can invest in the next Apple is like suggesting that you can date a 19-year-old Elizabeth Taylor," he said.

Why you don't want to finish 'prepropenultimate' in retirement

Charles Ellis is giving a personal tour of the Frick Museum, starting off with his favorite story: Joseph Duveen, the art dealer who charmed cash-strapped European aristocracy into selling their paintings to American industrialists like Henry Clay Frick. Trust Ellis to recognize the story behind the story, which he so often is himself.

Ellis then looks at the Gainsboroughs and the Rembrandts, pausing before a self-portrait to admire the honesty of the artist's depiction of himself, spinning stories as he walks. Among his career highlights was working with Baring Bros., the London-based insurance company that lent the money to make the Louisiana Purchase. The engagement with Baring Brothers and an executive he once worked with named Robin gave him one of his greatest tales.

"Did I tell you the story about 'prepropenultimate?'" he asks, and then, without waiting for an answer, begins. Prepropenultimate means, by the way, fourth from the last.

"I was sitting in a room with Robin talking over a proposal. And he said, 'Let's go back to your prepropenultimate point, because I don't think I fully agreed with you.'"

"Now, how far would you go to hear 'prepropenultimate' used naturally in conversation?'" said Ellis. "But he said it so easily. I always thought, 'That's just who he was.'"

By Elizabeth MacBride, special to