I really like index funds and ETFs for his or her low-cost nature and ease of possession. Nevertheless, if you wish to construct generational wealth earlier than conventional retirement age, contemplate wanting past simply index funds and index ETFs.
Since beginning Monetary Samurai in 2009, I’ve written extensively about funding methods, monetary independence, and retiring earlier to do what you need.
Primarily based on years of reader surveys and conversations, it is clear this neighborhood is likely one of the wealthiest on the net. A good portion of you’ve already surpassed the $1 million net worth mark, whereas many extra are closing in. As compared, the median family web value in America is barely about $200,000.
With this in thoughts, it’s time to acknowledge a easy fact: the richest individuals on this planet don’t rely primarily on index funds and ETFs to construct their fortunes. As a substitute, many use index funds primarily to protect their wealth, not create it.
Why Index Funds Alone Aren’t Sufficient
Most of us love index funds for his or her simplicity, low charges, and historic returns. But when your objective is to attain monetary freedom earlier than the normal retirement age, or to achieve a top 1% net worth, index funds alone in all probability received’t get you there earlier than age 60.
To get wealthy sooner, you want both:
- A large quantity of revenue to persistently make investments giant sums into index funds, or
- To take extra calculated dangers in different asset courses
Merely put, index fund investing is finest for capital preservation and slower, steadier development. A possible 10% annual return is implausible. However at that price, your funding solely doubles each 7.2 years. Hey, I am going to take it, and so would a lot of you. Nevertheless, it is merely not ok for the richest individuals.
Your life is finite. Most of us solely begin working full time after age 18. Forty years may sound like a very long time to construct wealth, however belief me—it flies by. I am 48 now, and I graduated faculty in 1999 at age 22. The previous 26 years have zoomed previous.
If I had solely invested in index funds, I wouldn’t have been capable of leave the workforce for good in 2012 at age 34. Don’t neglect, there was a “misplaced decade” for each the S&P 500 and NASDAQ from 2000 to 2012. Relying solely on index funds would have delayed my monetary freedom indefinitely.
Moreover getting fortunate, the one approach to obtain monetary freedom earlier than common is to take above-average dangers by investing past index funds and ETFs.
The Common Wealthy Versus the Richest Wealthy
First off, in case you’re wealthy—or suppose you’re wealthy—congratulations! You’re forward of at the very least 90% of the world, which additionally means you’ve purchased your self extra freedom than most. Though it’s robust, attempt to not let somebody richer than your already-rich self get you down. The secret’s appreciating what you’ve.
That stated, it’s vital to differentiate between two forms of wealthy, as a result of they’re not the identical. The private finance neighborhood principally focuses on the primary variety—The Common Wealthy—partly as a result of it is simpler to clarify and attain, and partly as a result of many monetary influencers don’t have finance backgrounds.
In actual fact, the dearth of monetary depth within the area was one of many principal causes I launched Monetary Samurai in 2009. Again then, practically each blogger emphasised budgeting and saving their approach to wealth. That’s strong recommendation for most individuals, nevertheless, I needed to transcend that.
I needed to flee the finance business altogether and retire early. That’s once I began writing about FIRE for the modern worker. With the web making it attainable to earn and reside in non-traditional methods, I noticed an thrilling alternative to pursue a special way of life.
Satirically, it was 2009—in the course of the world monetary disaster—when the digital nomad trend actually took off, as thousands and thousands discovered themselves out of conventional jobs and looking for one thing new.
Now let’s particular the 2 forms of wealthy individuals.
1. The Common Wealthy
This group contains people or households with investable belongings between $1,000,000 and $5 million. They are usually extremely educated, dual-income professionals who max out their 401(k)s, put money into low-cost index funds, and personal their main residence.
Most of their investments are in public markets and actual property, they usually usually really feel financially secure however not actually wealthy. Some would describe this because the mass affluent class. Many began off or are HENRYs (High Earners Not Rich Yet), however then usually decelerate their tempo of wealth accumulation as soon as children arrive.
You may consider the on a regular basis wealthy individual as somebody with gray hair, a portly determine, and retiring across the extra conventional age of 60–65. They have a median-priced residence and may fly Economic system Plus if they’re feeling notably spendy. They are not consuming at Michelin-star eating places, besides possibly for a uncommon special day, like a 30-year wedding ceremony anniversary.
The Common Wealthy know they’re wealthier than most, but they nonetheless don’t feel rich. As a substitute, they really feel nearer to the middle class than to the actually rich.
2. The Richest Wealthy
These are the individuals with $10 million-plus in investable assets, usually proudly owning second and third trip properties, flying top notch, and making seven-figure investments. Their children principally go to non-public grade faculty, which they will comfortably afford with out monetary help.
As a substitute, their cash got here from:
They could personal index funds, but it surely wasn’t a driver for them to get wealthy. As a substitute, index funds are a spot the place they park their cash, nearly like a money plus, till they discover a doubtlessly higher alternative.
20% plus or minus strikes within the S&P 500 do not part them because the Richest Wealthy usually expertise way more risky swings. In actual fact, the Richest Wealthy usually have investments go to zero as they continuously fortune hunt for the subsequent multi-bagger funding. So usually, index funds and ETFs are a small proportion of their total web value (<20%).
The Richest Wealthy Have a tendency To Be Seen as Eccentric
The Richest Wealthy are sometimes seen as eccentric, agitators, or downright bizarre by most of the people. That’s as a result of they have an inclination to reject the established order and do issues their very own approach. In consequence, they appeal to critics—typically plenty of them—merely for not following societal norms.
They refuse to spend their total careers working for another person to make that individual wealthy or group wealthy. As a substitute, they guess closely on themselves by means of entrepreneurship and different investments. Index funds and ETFs? Boring. Too sluggish. These people would somewhat construct one thing from scratch or swing for the fences.
Lots of the Richest Wealthy additionally go all-in on optimizing their our bodies and minds. They practice onerous, eat clear, and monitor each metric they will—usually within the hopes of staying match sufficient to increase their grind and lifespan.
To most, they arrive throughout as quirky or intense. However from their perspective, it’s the remainder of society that’s asleep, trapped in a system they’ve managed to flee.
Actual-World Web Value Breakdowns
Listed here are a number of anonymized examples of the Richest Wealthy:
Instance 1 – $30 Million Web Value
- 30% possession in enterprise fairness they began
- 30% actual property
- 20% public equities (65% particular person shares, 35% S&P 500 index funds)
- 15% enterprise capital funds
- 5% muni, Treasury bonds, money
Instance 2 – $300 Million Web Value
- 40% possession in enterprise fairness they began
- 20% actual property
- 20% in different personal firms
- 15% shares (half in index funds)
- 5% money and bonds
Instance 3 – $600 Million Web Value
- 5% possession in a large personal cash administration agency as one in all their senior execs
- 15% actual property
- 50% in different personal firms
- 10% shares (half in index funds)
- 20% money & bonds (~$180 million at 4% yields a whopping $6.4 million risk-free a yr right this moment)
None of them bought wealthy by solely investing in index funds. As a substitute, index funds are merely a low-risk asset class to them the place they will park cash.
Web Value Breakdown By Ranges Of Wealth
This is web value breakdown visualization by web value ranges. The info is from the Federal Reserve Board Of Client Funds, which comes out each three years.
Let’s assume the mass prosperous represented within the chart beneath is on the $1 million web value stage. Roughly 25% of the mass prosperous’s web value is of their primary residence, 15% is in retirement accounts, 10% is in actual property investments, and 12% is in enterprise pursuits.
As compared, for the Richest Wealthy ($10M+), at the very least 30% of their web value is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest individuals on this planet. Subsequently, if you wish to be actually wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Higher Threat Than Common = Higher Wealth
Constructing significant wealth usually comes all the way down to how a lot threat you are taking—and the way early you are taking it. If you’re younger, lean into greater bets. Spend money on your self. Construct one thing. Personal one thing past simply index funds. When you lose cash, you’ve nonetheless bought time to earn it again—after which some.
If I may rewind the clock, I might’ve taken extra calculated dangers in my 20s and early 30s. Relatively than enjoying it comparatively protected, I might’ve gone greater on enterprise alternatives and leveraged extra into actual property. I additionally would’ve made bigger, concentrated bets on tech giants like Google, Apple, Tesla, and Netflix. The CEO of Netflix, Reed Hastings, spoke at my MBA commencement ceremony in 2006 when the inventory was solely $10 a share.
As well as, I might have began Monetary Samurai in 2006, once I graduated enterprise faculty and got here up with the concept. As a substitute, I waited three years till a worldwide monetary disaster pressured me to cease being lazy.
However actually, I used to be too rooster poop to take a position greater than $25,000 in anyone identify—even once I had the capital to place $100,000 in every earlier than 2012. The scars from the dot-com bust and the worldwide monetary disaster made me hesitant, particularly after watching so many wealthier colleagues get crushed.
Nonetheless, I nonetheless ended up saving over 50% of my revenue for 13 years and investing 90% of the cash in threat belongings, most of which was not in index funds. I’ve had some spectacular blowups, however I’ve additionally had some terrific wins that created a step perform up in wealth.
Don’t Be Too Simply Happy With What You Have
One of many keys to going from wealthy to actually wealthy is pushing past your monetary consolation zone—particularly when you’re nonetheless younger sufficient to bounce again from errors.
You’ve bought to be slightly greedier than the common individual, as a result of let’s face it: no one wants tens or a whole bunch of thousands and thousands—not to mention billions—to outlive or be comfortable. However in case you’re aiming for that subsequent stage of wealth, you are going to must need it extra and take calculated dangers others received’t.
I used to be happy with a $3 million net worth again in 2012, so I finished attempting to maximise my funding returns. Large mistake. The financial system boomed for the subsequent 10 years, and I missed out on higher upside.
Then in 2025, after one other short-term 20% downturn, I shifted my taxable portfolio nearer to a 60/40 asset allocation. The temptation of incomes 4%+ risk-free passive income was too robust. From a pure returns perspective, that’ll in all probability develop into one other mistake long run.
To steadiness issues out, I’ve deployed a dumbbell strategy—anchoring with Treasury payments and bonds on one finish, whereas taking bolder swings in private AI companies on the opposite. And you realize what? It feels nice. I get to sleep effectively at evening realizing I’ve bought safety on the draw back, whereas nonetheless collaborating within the upside if the subsequent huge factor takes off.
Closing Thought On Investing In Index Funds And ETFs
Index funds are nice. I personal a number of seven figures value of them. It’s best to too. However they’re finest suited to these on the normal retirement monitor or these seeking to protect wealth.
If you wish to obtain monetary freedom sooner or be part of the ranks of the Richest Wealthy, you’ll want to take a position past index funds. Construct one thing. Take dangers. Personal extra of your future.
That’s how the richest individuals do it.
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Diversify Your Retirement Investments
Shares and bonds are traditional staples for retirement investing. Nevertheless, I additionally recommend diversifying into actual property—an funding that mixes the revenue stability of bonds with higher upside potential.
Contemplate Fundrise, a platform that permits you to 100% passively put money into residential and industrial actual property. With over $3 billion in personal actual property belongings underneath administration, Fundrise focuses on properties within the Sunbelt area, the place valuations are decrease, and yields are usually larger. Because the Federal Reserve embarks on a multi-year rate of interest lower cycle, actual property demand is poised to develop within the coming years.
As well as, you possibly can put money into Fundrise Venture if you need publicity to non-public AI firms like OpenAI, Anthropic, Anduril, and Databricks. AI is about to revolutionize the labor market, eradicate jobs, and considerably enhance productiveness. We’re nonetheless within the early levels of the AI revolution, and I wish to guarantee I’ve sufficient publicity—not only for myself, however for my youngsters’s future as effectively.
I’ve personally invested over $400,000 with Fundrise, they usually’ve been a trusted accomplice and long-time sponsor of Monetary Samurai. With a $10 funding minimal, diversifying your portfolio has by no means been simpler.
To extend your probabilities of reaching monetary independence, be part of 60,000+ readers and subscribe to my free Monetary Samurai publication here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site right this moment. Every part is written based mostly off firsthand expertise.
