I 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, 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 group is likely one of the wealthiest on the internet. A good portion of you may have already surpassed the $1 million internet value mark, whereas many extra are closing in. Compared, the median family internet value in America is simply 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 purpose is to realize monetary freedom earlier than the standard retirement age, or to achieve a prime 1% internet value, index funds alone most likely received’t get you there earlier than age 60.
To get wealthy sooner, you want both:
- An enormous quantity of revenue to persistently make investments massive sums into index funds, or
- To take extra calculated dangers in different asset lessons
Merely put, index fund investing is finest for capital preservation and slower, steadier progress with reasonable danger. A possible 10% annual return is incredible. However at that fee, your funding solely doubles each 7.2 years. Hey, I will take it, and so would a lot of you. Nevertheless, it is merely not adequate for the richest individuals.
Your life is finite. Most of us solely begin working full time and investing 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 depart the workforce for good in 2012 at age 34. Don’t overlook, 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 strategy to obtain monetary freedom prior to common is to take above-average dangers by investing past index funds and ETFs. Trying again, I want I had extra braveness.
The Common Wealthy Versus the Richest Wealthy
First off, for those who’re wealthy—or really feel 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, strive to not let somebody richer than your already-rich self get you down. The secret is appreciating what you may have.
That stated, it’s essential to differentiate between two kinds of wealthy, as a result of they’re not the identical. The private finance group largely focuses on the primary sort—The Common Wealthy—partly as a result of it is simpler to elucidate and attain, and partly as a result of many monetary creators don’t have finance backgrounds. We provide you with loopy sub-FIRE varieties, akin to Coast FIRE, which is basically no completely different from a full-time worker who saves for retirement.
Actually, the shortage of economic depth within the house was one of many foremost causes I launched Monetary Samurai in 2009. Again then, almost each blogger solely emphasised budgeting and saving their strategy to wealth. That’s strong recommendation for most individuals, nevertheless, I wished to transcend that. You possibly can solely achieve this a lot saving your strategy to wealth.
I wished to flee the finance trade altogether and retire early. That’s after I began writing about FIRE for the fashionable employee. With the web making it attainable to earn and reside in non-traditional methods, I noticed an thrilling alternative to pursue a unique life-style.
Sarcastically, it was 2009—through the international monetary disaster—when the digital nomad pattern actually took off, as tens of millions discovered themselves out of conventional jobs and looking for one thing new.
Now let’s particular the 2 kinds of wealthy individuals.
1. The Common Wealthy
This group contains people or households with investable property between $1,000,000 and $5 million. They are typically extremely educated, dual-income professionals who max out their 401(okay)s, put money into low-cost index funds, and personal their major residence.
Most of their investments are in public markets and actual property, they usually sometimes really feel financially steady however not actually 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 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 dwelling and may fly Financial 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 actually rich.
2. The Richest Wealthy
These are the individuals with $10 million-plus in investable property, typically proudly owning second and third trip houses, flying top quality, and making excessive six-figure or seven-figure investments. Their children largely go to non-public grade college, which they will comfortably afford with out monetary assist. In addition they freely donate vital sums of cash recurrently.
As a substitute of investing largely in index funds to get wealthy, their cash got here from:
They may personal index funds, however it 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 typically expertise far more unstable swings. Actually, the Richest Wealthy typically have investments go to zero as they constantly fortune hunt for the following multi-bagger funding. So typically, index funds and ETFs are a small share of their total internet value (<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 of the people. That’s as a result of they have a tendency to reject the established order and do issues their very own manner. In consequence, they appeal to critics—generally a number 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. They don’t seem to be spending a fortune to get an MBA solely to work for another person. As a substitute, they guess closely on themselves by way of entrepreneurship and different investments. Index funds and ETFs? Boring. Too gradual. These of us would slightly 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 prepare onerous, eat clear, and monitor each metric they will—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 Web Price Breakdowns
Listed here are a number of anonymized examples of the Richest Wealthy:
Instance 1 – $30 Million Web 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 Web 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 Web Price
- 5% possession in an enormous 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 immediately)
None of them received 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 Price Breakdown By Ranges Of Wealth
Here is a very good internet value breakdown visualization by internet 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 under is on the $1 million internet value degree. Roughly 25% of the mass prosperous’s internet value is of their major 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 value 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 actually wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Better Danger Than Common = Better Than Common Wealth
Constructing significant wealth typically comes all the way down to how a lot danger you are taking—and the way early you are taking it. Once you’re younger, lean into larger bets. Put money into your self. Construct one thing. Personal one thing past simply index funds. When you lose cash, you’ve nonetheless received time to earn it again—after which some.
If I might rewind the clock, I might’ve taken extra calculated dangers in my 20s and early 30s. Quite than enjoying it comparatively secure, I might’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 might have began Monetary Samurai in 2006, after I graduated enterprise college and got here up with the concept. As a substitute, I waited three years till a worldwide monetary disaster compelled 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 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 revenue for 13 years and investing 90% of the cash in danger 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 operate 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 whilst you’re nonetheless younger sufficient to bounce again from errors.
You’ve received to be somewhat greedier than the typical individual, as a result of let’s face it: no one wants tens or a whole lot of tens of millions—not to mention billions—to outlive or be comfortable. However for those who’re aiming for that subsequent degree of wealth, you are going to should need it extra and take calculated dangers others received’t.
I used to be glad with a $3 million internet value again in 2012, so I finished attempting to maximise my funding returns. Large mistake. The financial system boomed for the following 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 robust. From a pure returns perspective, that’ll most likely become one other mistake long run.
To stability 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 recognize what? It feels nice. I get to sleep nicely at night time understanding I’ve received safety on the draw back, whereas nonetheless taking part within the upside if the following huge factor takes off.
Ultimate Thought On Investing In Index Funds And ETFs
Index funds are nice. I personal a number of seven figures value of them. You need to too. However they’re finest fitted to these on the standard retirement monitor or these seeking to protect wealth.
If you wish to obtain monetary freedom quicker 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 basic staples for retirement investing. Nevertheless, I additionally counsel diversifying into actual property—an funding that mixes the revenue stability of bonds with higher upside potential.
Think about 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 typically increased. Because the Federal Reserve embarks on a multi-year rate of interest minimize 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, remove jobs, and considerably enhance 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 kids’s future as nicely.
I’ve personally invested over $400,000 with Fundrise, they usually’ve been a trusted companion 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 reaching monetary independence, be part of 60,000+ readers and subscribe to my free Monetary Samurai e-newsletter right here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site immediately. All the things is written primarily based off firsthand expertise.
