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, think about 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.
Primarily based on years of reader surveys and conversations, it is clear this group is without doubt one of the wealthiest on the net. A good portion of you’ve gotten already surpassed the $1 million web value mark, whereas many extra are closing in. As compared, the median family web value in America is simply about $200,000.
With this in thoughts, it’s time to acknowledge a easy fact: the richest folks on the 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 objective is to realize monetary freedom earlier than the standard retirement age, or to succeed in a prime 1% web value, index funds alone most likely gained’t get you there earlier than age 60.
To get wealthy sooner, you want both:
- A large quantity of earnings to constantly make investments giant sums into index funds, or
- To take extra calculated dangers in different asset courses
Merely put, index fund investing is greatest for capital preservation and slower, steadier development. A possible 10% annual return is incredible. 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. 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 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.
Moreover getting fortunate, the one option 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 the event you’re wealthy—or suppose you’re 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’ve gotten.
That stated, it’s vital to tell apart between two kinds of wealthy, as a result of they’re not the identical. The private finance group largely focuses on the primary variety—The Common Wealthy—partly as a result of it is simpler to elucidate and attain, and partly as a result of many monetary influencers don’t have finance backgrounds.
In truth, the shortage of monetary depth within the house was one of many principal causes I launched Monetary Samurai in 2009. Again then, almost each blogger emphasised budgeting and saving their option 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 after I began writing about FIRE for the trendy employee. With the web making it attainable to earn and stay in non-traditional methods, I noticed an thrilling alternative to pursue a special way of life.
Sarcastically, it was 2009—through the international 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 kinds of wealthy folks.
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(ok)s, spend money on 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 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 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 Financial system Plus if they’re feeling significantly 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 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 folks with $10 million-plus in investable belongings, typically proudly owning second and third trip houses, flying firstclass, and making seven-figure investments. Their youngsters largely go to non-public grade college, which they will comfortably afford with out monetary support.
As an alternative, their cash got here from:
They may 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, virtually 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 rather more risky swings. In truth, 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 general web 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 an inclination to reject the established order and do issues their very own approach. In consequence, they entice critics—generally a lot 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. As an alternative, they guess closely on themselves by entrepreneurship and various investments. Index funds and ETFs? Boring. Too gradual. These of us 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 prepare arduous, 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 below are just a few 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 corporations
- 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 considered one of their senior execs
- 15% actual property
- 50% in different personal corporations
- 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 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 will park cash.
Web Price Breakdown By Ranges Of Wealth
Here is a superb 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 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 web value is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest folks on the planet. Subsequently, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Higher Danger Than Common = Higher Wealth
Constructing significant wealth typically 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. Put money into 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 may rewind the clock, I’d’ve taken extra calculated dangers in my 20s and early 30s. Somewhat than taking part in it comparatively protected, I’d’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’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 truthfully, I used to be too hen poop to speculate greater than $25,000 in anyone title—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 earnings 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 whilst you’re nonetheless younger sufficient to bounce again from errors.
You’ve acquired to be a little bit greedier than the common individual, as a result of let’s face it: no person wants tens or a whole bunch of hundreds of thousands—not to mention billions—to outlive or be joyful. However in the event you’re aiming for that subsequent stage of wealth, you are going to must need it extra and take calculated dangers others gained’t.
I used to be happy with a $3 million web value again in 2012, so I finished attempting to maximise my funding returns. Large mistake. The economic system boomed for the following 10 years, and I missed out on better 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 sturdy. From a pure returns perspective, that’ll most likely grow to be 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 corporations on the opposite. And what? It feels nice. I get to sleep nicely at evening understanding I’ve acquired safety on the draw back, whereas nonetheless collaborating within the upside if the following massive 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 is best to too. However they’re greatest suited to these on the standard 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 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 better upside potential.
Think about Fundrise, a platform that means that you can 100% passively spend money on residential and industrial actual property. With over $3 billion in personal actual property belongings below 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.
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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 e-newsletter right here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site right this moment. The whole lot is written based mostly off firsthand expertise.
