ETF Edge

Why one top investor says the case for indexing is stronger than ever

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Why author Charles Ellis says index investing is stronger than ever

It's never been a better time to embrace indexing, according to one long-time investor.

Charles Ellis, author of the seminal investing book "Winning the Loser's Game," out Tuesday in its eighth edition, said the case for passive investing hasn't been stronger in years.

"Years ago, active investing was really fun — easy to do, almost — and for people who are very bright and working hard, it was something they could accomplish. But times change," the founder and former managing partner of Greenwich Associates said Monday on CNBC's "ETF Edge."

"Now, all the advantages we had in those days have been put behind us," he said. "The information flow — and everybody has it — makes everybody equal."

That might explain why some 90% of active managers have underperformed over the last 15-20 years, and why the ones who do beat the market tend to do so by only a small margin, Ellis said.

Factoring in operational costs, fees and taxes, active management simply doesn't stack up to passive indexing, particularly when it comes to the individual investor, he said.

"Many of our life lessons are if you do more homework and work harder and try harder, you'll do better, and that's often true. But there are some parts of life where that just isn't the case," Ellis said. "Candidly, in today's contemporary world, ... active doesn't really help and it does harm."

The best investors can do is stay the course, invest for the long term and remain diversified, he said.

"Active examination of who you are, what your problems are, what your opportunities are, what your resources are, how long you've got to be invested ... really pays if it's done carefully and well. And if you can't do it yourself, get an investment advisor who will take you through the process," Ellis said. "That's active at its best."

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Investing legend Charles Ellis makes his latest case for indexing