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 trying 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.
Based mostly on years of reader surveys and conversations, it is clear this group is likely one of the wealthiest on the net. A good portion of you might have already surpassed the $1 million internet price mark, whereas many extra are closing in. Compared, the median family internet price in America is just 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 an alternative, 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 attain monetary freedom earlier than the normal retirement age, or to achieve a high 1% internet price, index funds alone in all probability gained’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 unbelievable. However at that price, your funding solely doubles each 7.2 years. Hey, I will take it, and so would a lot of you. Nonetheless, it is merely not adequate for the richest individuals.
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 capable of go away 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.
In addition to getting fortunate, the one method to obtain monetary freedom prior to common is to take above-average dangers by investing past index funds and ETFs.
The Common Wealthy Versus the Richest Wealthy
First off, in the event you’re wealthy—or assume you’re wealthy—congratulations! You’re forward of not less than 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 hot button is appreciating what you might have.
That mentioned, it’s essential to differentiate between two forms of wealthy, as a result of they’re not the identical. The non-public finance group 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 influencers don’t have finance backgrounds.
Actually, the shortage of economic depth within the house was one of many predominant causes I launched Monetary Samurai in 2009. Again then, almost each blogger emphasised budgeting and saving their method to wealth. That’s stable recommendation for most individuals, nevertheless, I wished to transcend that.
I wished to flee the finance business altogether and retire early. That’s after I began writing about FIRE for the trendy employee. With the web making it potential to earn and stay in non-traditional methods, I noticed an thrilling alternative to pursue a unique way of life.
Satirically, it was 2009—throughout the world monetary disaster—when the digital nomad pattern actually took off, as hundreds of thousands discovered themselves out of conventional jobs and trying to find one thing new.
Now let’s particular the 2 forms of wealthy individuals.
1. The Common Wealthy
This group consists of 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(okay)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 sometimes really feel financially steady 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 typically decelerate their tempo of wealth accumulation as soon as children 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 notably spendy. They are not consuming at Michelin-star eating places, besides perhaps for a uncommon big day, like a 30-year wedding ceremony anniversary.
The Common Wealthy know they’re wealthier than most, but they nonetheless don’t really feel wealthy. As an alternative, they really feel nearer to the center class than to the really rich.
2. The Richest Wealthy
These are the individuals with $10 million-plus in investable belongings, typically proudly owning second and third trip houses, flying firstclass, and making seven-figure investments. Their children principally go to non-public grade college, which they’ll comfortably afford with out monetary support.
As an alternative, their cash got here from:
They could personal index funds, however it wasn’t a driver for them to get wealthy. As an alternative, 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 section them because the Richest Wealthy typically expertise way more unstable swings. Actually, the Richest Wealthy typically have investments go to zero as they constantly fortune hunt for the subsequent multi-bagger funding. So typically, 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 considered as eccentric, agitators, or downright bizarre by most people. That’s as a result of they have an inclination to reject the established order and do issues their very own method. In consequence, they appeal to critics—generally numerous 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. As an alternative, they wager closely on themselves by way of entrepreneurship and various investments. Index funds and ETFs? Boring. Too gradual. These people would relatively 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 onerous, eat clear, and observe each metric they’ll—typically 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 just a few 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 one in every 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 12 months at present)
None of them acquired wealthy by solely investing in index funds. As an alternative, index funds are merely a low-risk asset class to them the place they’ll park cash.
Internet Price Breakdown By Ranges Of Wealth
Here is an excellent internet price breakdown visualization by internet price 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 internet price degree. 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.
Compared, for the Richest Wealthy ($10M+), not less than 30% of their internet price is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest individuals on this planet. Due to this fact, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Larger Danger Than Common = Larger Wealth
Constructing significant wealth typically comes right down to how a lot danger you’re taking—and the way early you’re taking it. While you’re younger, lean into larger bets. Spend money on your self. Construct one thing. Personal one thing past simply index funds. In case 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. Slightly than enjoying it comparatively secure, 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, after I graduated enterprise college and got here up with the thought. As an alternative, I waited three years till a world 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 after 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 danger 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 operate 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 when you’re nonetheless younger sufficient to bounce again from errors.
You’ve acquired to be slightly greedier than the common individual, as a result of let’s face it: no person wants tens or tons of of hundreds of thousands—not to mention billions—to outlive or be joyful. However in the event you’re aiming for that subsequent degree of wealth, you are going to should need it extra and take calculated dangers others gained’t.
I used to be happy with a $3 million internet price again in 2012, so I ended making an attempt to maximise my funding returns. Huge mistake. The economic 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 revenue was too sturdy. From a pure returns perspective, that’ll in all probability 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 understand what? It feels nice. I get to sleep effectively at evening realizing I’ve acquired safety on the draw back, whereas nonetheless taking part within the upside if the subsequent large factor takes off.
Ultimate Thought On Investing In Index Funds And ETFs
Index funds are nice. I personal a number of seven figures price of them. It is best 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 quicker or be a 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. Nonetheless, I additionally recommend diversifying into actual property—an funding that mixes the revenue stability of bonds with higher upside potential.
Take into account 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 beneath 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 lower cycle, actual property demand is poised to develop within the coming years.
As well as, you’ll be able to put money into Fundrise Enterprise in order for you publicity to non-public AI firms like OpenAI, Anthropic, Anduril, and Databricks. AI is about to revolutionize the labor market, remove jobs, and considerably enhance productiveness. We’re nonetheless within the early levels of the AI revolution, and I need 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 possibilities of attaining monetary independence, be a 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 website at present. All the things is written primarily based off firsthand expertise.
