Based on a lot of the recent dire headlines, many Americans may have come to think of Social Security as an asset that is going to disappear from their financial future rather than be part of it, but it may be a bigger factor in portfolio success than it gets credit for, according to investing legend Charles Ellis.

The steady stream of income provided by Social Security can influence asset allocation decisions that improve overall performance, says Ellis, who has written many books on investing and helped to pioneer the index fund space.

“We don’t talk about it. We don’t measure it. We don’t quantify it. But it’s a substantial asset,” Ellis told CNBC’s Bob Pisani on “ETF Edge” this week.

He argues Social Security functions similarly to an inflation-protected bond. Yet, it is rarely factored into investor asset allocation plans.

Overlooking Social Security can be a big mistake, said Ellis, whose books on finance include “Winning the Loser’s Game,” and whose new book is “Rethinking Investing – A Very Short Guide to Very Long-Term Investing.”

“Be very surprised if you don’t have something on the order of $250[000] to $350,000 coming your way through the Social Security program,” Ellis said on “ETF Edge.”

Failing to recognize this can lead to overly cautious investing, he added.

The S&P 500 has averaged around 12% annual returns since 1928, according to New York University Stern. The U.S. 10 Year Treasury has returned just about 5% over the same time period.

Ellis says Social Security’s steady income stream allows for greater stock exposure.

“Almost anybody looking at the reason for holding bonds talks about the desire to reduce the fluctuations,” he said.

He gave the example of an inheritance that an adult child expects as a parallel thought experiment. “If you have wealthy parents that are going to give you an inheritance in the future, any of those things that you really know are valued, why not include them in your thinking so that you won’t overweight yourself in fixed income?”

“Why not include [Social Security] in your thinking?” Ellis said.

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DaVita, a company that provides dialysis services, saw shares tumbling Friday after issuing a weak outlook amid rising care costs, while big investor Berkshire Hathaway offloaded some shares in a preplanned agreement.

The health-care stock fell more than 12% Friday. The Colorado-based company said it expects its 2025 adjusted profit per share to be between $10.20 and $11.30, compared to analysts’ average expectation of $11.24 per share, according to LSEG.

The disappointing guidance underlined increasing patient care costs due to center closure costs and health benefit expenses. In the fourth quarter, the company incurred charges for closures of its dialysis centers in the U.S. totaling $24.2 million.

Still, DaVita’s fourth-quarter earnings of $2.24 per share on an adjusted basis topped analysts’ estimates of $2.13 per share per LSEG.

Separately, DaVita’s largest institutional investor Berkshire Hathaway sold 203,091 shares on Tuesday to reduce its stake to 45%, worth nearly $6.4 billion, a regulatory filing Thursday night showed.

The sale was part of a share repurchase agreement the two parties reached back in April. DaVita agreed  to buy back shares to reduce Berkshire’s ownership stake to 45% on a quarterly basis.

Warren Buffett’s conglomerate first invested in DaVita in 2011. As of the end of September, DaVita was Berkshire’s 10th largest equity holding.

Stock picking looks easy, but the numbers prove it isn’t. S&P Global reports that after one year, 73% of active managers underperform their benchmarks. After five years, 95.5% of active managers miss the mark. After 15 years, nobody outperforms.

That is not going to change, according to Charles Ellis, a veteran investment industry figure and believer in the power of indexing. In fact, the growth of passive funds has led some in the industry to worry it will kill the active management business, a charge Ellis says doesn’t hold true, but it will remain true that active managers struggle to find an edge in the market. 

“The number of people that get hired into active management keeps rising and we’re way overloaded with talent in that area and we’ll stay there as long as it is great fun, with high pay and you can also make a small fortune,” Ellis said on CNBC’s “ETF Edge” this week.

ETF industry expert Dave Nadig agreed that active managers aren’t going away. “We just had the best year for active management inflows that we’d ever had,” he said on “ETF Edge.” 

Active ETFs continued their hot streak bringing in investor money in January. Still, good times for active fund flows can’t compare to the index fund and ETF flows behemoth. “It isn’t that anybody thinks active management shouldn’t exist, but the vast majority of flows are coming from fairly unsophisticated individual investors going into big indexes and big target data funds,” Nadig added. 

Ellis, who first made his mark in finance by founding the consulting group Greenwich Associates, and was later a board member at low-cost index fund giant The Vanguard Group, is worried about the ETF space as it grows. “What you have to be really positive about is the increase of ETFs that are available and a steady reduction in the fees that are being charged,” he told CNBC’s Bob Pisani.

But Ellis, whose new book is called “Rethinking Investing – A Very Short Guide to Very Long-Term Investing” said success has bred some new investor dangers. “You must worry about the ETFs that are being produced much more for the salesperson than the buyer and how they’re too specialized and too narrow,” he said.  Ellis is especially concerned about leveraged ETFs “so that you get explosive upside but also explosive downside.” 

Ellis believes investors have to look for ETFs “that are best for you, and what you want to accomplish.”

Nadig made the point that technology has become the great equalizer in the markets: everyone has it, meaning getting an edge on other traders who often have the same or similar technology, is difficult.  “Active management is possible, you’ll just never find it in advance,” he said.

“The ironic reason that active managers underperform is that they’re all so good at what they’re trying to do, they cancel each other out,” Ellis said. Because of the computing power and quantitative models that are now so accessible to stock pickers, “it’s like playing poker with all the cards face up,” he added.

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