I really like index funds and ETFs for his or her low-cost nature and ease of possession. Nonetheless, if you wish to construct generational wealth earlier than conventional retirement age, take into account 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 may have already surpassed the $1 million internet price mark, whereas many extra are closing in. As compared, the median family internet price in America is simply about $200,000.
With this in thoughts, it’s time to acknowledge a easy fact: the richest folks on the earth 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 purpose is to realize monetary freedom earlier than the normal retirement age, or to achieve a high 1% internet price, index funds alone most likely gained’t get you there earlier than age 60.
To get wealthy sooner, you want both:
- An enormous quantity of earnings to constantly make investments massive 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 progress. A possible 10% annual return is incredible. However at that fee, your funding solely doubles each 7.2 years. Hey, I am going to take it, and so would a lot of you. Nonetheless, it is merely not adequate for the richest folks.
Your life is finite. Most of us solely begin working full time after age 18. Forty years would possibly 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 in a position to depart 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 solution to obtain monetary freedom earlier than common is to take above-average dangers by investing past index funds and ETFs. Trying again, I want I had taken extra dangers.
The Common Wealthy Versus the Richest Wealthy
First off, if you happen to’re wealthy—or really feel wealthy—congratulations! You’re forward of at the least 90% of the world, which additionally means you’ve purchased your self extra freedom than most. Though it’s powerful, attempt to not let somebody richer than your already-rich self get you down. The bottom line is appreciating what you may have.
That mentioned, it’s essential to differentiate between two sorts of wealthy, as a result of they’re not the identical. The private finance neighborhood principally focuses on the primary sort—The Common Wealthy—partly as a result of it is simpler to clarify and attain, and partly as a result of many monetary creators don’t have finance backgrounds.
In actual fact, the dearth of monetary depth within the house was one of many foremost causes I launched Monetary Samurai in 2009. Again then, practically each blogger solely emphasised budgeting and saving their solution to wealth. That’s stable recommendation for most individuals, nevertheless, I wished to transcend that. You’ll be able to solely accomplish that a lot saving your solution to wealth.
I wished to flee the finance trade altogether and retire early. That’s once I began writing about FIRE for the trendy employee. With the web making it doable to earn and reside in non-traditional methods, I noticed an thrilling alternative to pursue a unique way of life.
Sarcastically, it was 2009—through the international monetary disaster—when the digital nomad pattern 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 sorts of wealthy folks.
1. The Common Wealthy
This group contains people or households with investable property between $1,000,000 and $5 million. They are usually extremely educated, dual-income professionals who max out their 401(ok)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 really wealthy. Some would describe this because the mass prosperous class. Many began off or are HENRYs (Excessive Earners Not Wealthy But), however then usually decelerate their tempo of wealth accumulation as soon as youngsters arrive.
You would possibly 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 house and would possibly fly Economic system Plus if they’re feeling significantly spendy. They don’t seem to be consuming at Michelin-star eating places, besides perhaps for a uncommon big day, like a 30-year marriage ceremony anniversary.
The Common Wealthy know they’re wealthier than most, but they nonetheless don’t really feel wealthy. As a substitute, they really feel nearer to the center class than to the really rich.
2. The Richest Wealthy
These are the folks with $10 million-plus in investable property, usually proudly owning second and third trip properties, flying top quality, and making excessive six-figure or seven-figure investments. Their youngsters principally go to non-public grade faculty, which they will comfortably afford with out monetary assist. Additionally they freely donate vital sums of cash repeatedly.
As a substitute of investing principally in index funds to get wealthy, their cash got here from:
They could personal index funds, nevertheless it wasn’t a driver for them to get wealthy. As a substitute, index funds are a spot the place they park their cash, virtually like a money plus, till they discover a probably higher alternative.
20% plus or minus strikes within the S&P 500 do not section them because the Richest Wealthy usually expertise far more unstable swings. In actual fact, the Richest Wealthy usually have investments go to zero as they constantly fortune hunt for the subsequent multi-bagger funding. So usually, index funds and ETFs are a small share of their total internet price (<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 manner. In consequence, they appeal to critics—generally plenty of them—merely for not following societal norms.
They refuse to spend their whole careers working for another person to make that individual wealthy or group wealthy. They don’t seem to be spending a fortune to get an MBA solely to work for another person. As a substitute, they wager closely on themselves by entrepreneurship and various investments. Index funds and ETFs? Boring. Too sluggish. These people would somewhat construct one thing from scratch or swing for the fences.
Most of the Richest Wealthy additionally go all-in on optimizing their our bodies and minds. They practice arduous, eat clear, and observe 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 Internet Price Breakdowns
Listed below are a number of anonymized examples of the Richest Wealthy:
Instance 1 – $30 Million Internet Price
- 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 Internet Price
- 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 Internet Price
- 5% possession in a large personal cash administration agency as considered one of 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 at present)
None of them acquired 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.
Internet Price Breakdown By Ranges Of Wealth
Here is internet price breakdown visualization by internet price ranges. The information 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 internet price stage. Roughly 25% of the mass prosperous’s internet price is of their main 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 least 30% of their internet price is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest folks on the earth. Subsequently, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Better Danger Than Common = Better Than Common Wealth
Constructing significant wealth usually comes all the way down to how a lot threat you’re taking—and the way early you’re taking it. Whenever you’re younger, lean into larger bets. Spend money on your self. Construct one thing. Personal one thing past simply index funds. Should you lose cash, you’ve nonetheless acquired time to earn it again—after which some.
If I might rewind the clock, I’d’ve taken extra calculated dangers in my 20s and early 30s. Moderately than taking part in it comparatively protected, I’d’ve gone larger 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’d have began Monetary Samurai in 2006, once I graduated enterprise faculty and got here up with the thought. As a substitute, I waited three years till a world monetary disaster pressured me to cease being lazy.
However actually, I used to be too hen poop to speculate greater than $25,000 in anyone title—even once I had the capital to place $100,000 in every earlier than 2012. The scars from the dot-com bust and the international monetary disaster made me hesitant, particularly after watching so many wealthier colleagues get crushed.
Nonetheless, I nonetheless ended up saving over 50% of my earnings for 13 years and investing 90% of the cash in threat property, 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 Glad With What You Have
One of many keys to going from wealthy to actually wealthy is pushing past your monetary consolation zone—particularly whilst you’re nonetheless younger sufficient to bounce again from errors.
You’ve acquired to be a bit of greedier than the common individual, as a result of let’s face it: no person wants tens or a whole bunch of thousands and thousands—not to mention billions—to outlive or be comfortable. However if you happen to’re aiming for that subsequent stage of wealth, you are going to need to need it extra and take calculated dangers others gained’t.
I used to be glad with a $3 million internet price again in 2012, so I finished making an attempt to maximise my funding returns. Huge mistake. The financial system boomed for the subsequent 10 years, and I missed out on larger 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 earnings was too robust. From a pure returns perspective, that’ll most likely change into one other mistake long run.
To steadiness issues out, I’ve deployed a dumbbell technique—anchoring with Treasury payments and bonds on one finish, whereas taking bolder swings in personal AI firms on the opposite. And you already know what? It feels nice. I get to sleep effectively at evening realizing I’ve acquired safety on the draw back, whereas nonetheless collaborating within the upside if the subsequent massive factor takes off.
Last Thought On Investing In Index Funds And ETFs
Index funds are nice. I personal a number of seven figures price of them. You need to too. However they’re finest suited to these on the normal retirement observe 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 speculate past index funds. Construct one thing. Take dangers. Personal extra of your future.
That’s how the richest folks do it.
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Diversify Your Retirement Investments
Shares and bonds are traditional staples for retirement investing. Nonetheless, I additionally counsel diversifying into actual property—an funding that mixes the earnings stability of bonds with larger upside potential.
Contemplate Fundrise, a platform that lets you 100% passively put money into residential and industrial actual property. With over $3 billion in personal actual property property underneath administration, Fundrise focuses on properties within the Sunbelt area, the place valuations are decrease, and yields are usually greater. Because the Federal Reserve embarks on a multi-year rate of interest reduce cycle, actual property demand is poised to develop within the coming years.
As well as, you possibly can put money into Fundrise Enterprise if you’d like publicity to non-public AI firms like OpenAI, Anthropic, Anduril, and Databricks. AI is ready to revolutionize the labor market, eradicate jobs, and considerably increase productiveness. We’re nonetheless within the early phases 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 attaining monetary independence, be part of 60,000+ readers and subscribe to my free Monetary Samurai publication right here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site at present. All the things is written primarily based off firsthand expertise.
