I 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 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.
Based mostly 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 could have already surpassed the $1 million net worth mark, whereas many extra are closing in. Compared, the median family internet price in America is barely about $200,000.
With this in thoughts, it’s time to acknowledge a easy reality: 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 normal retirement age, or to succeed in a top 1% net worth, 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 revenue to constantly make investments massive sums into index funds, or
- To take extra calculated dangers in different asset lessons
Merely put, index fund investing is greatest for capital preservation and slower, steadier development with reasonable threat. A possible 10% annual return is implausible. However at that fee, 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 ok for the richest individuals.
Your life is finite. Most of us solely begin working full time and investing 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 school 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 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 strategy to obtain monetary freedom prior to common is to take above-average dangers by investing past index funds and ETFs. Wanting again, I want I had extra braveness.
The Common Wealthy Versus the Richest Wealthy
First off, should you’re wealthy—or feel rich—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’s appreciating what you could have.
That stated, it’s vital to differentiate between two forms of wealthy, as a result of they’re not the identical. The non-public finance neighborhood principally 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 give you loopy sub-FIRE varieties, akin to Coast FIRE, which is actually no completely different from a full-time worker who saves for retirement.
In reality, the shortage of monetary depth within the house was one of many essential causes I launched Monetary Samurai in 2009. Again then, practically each blogger solely emphasised budgeting and saving their strategy to wealth. That’s stable recommendation for most individuals, nevertheless, I needed to transcend that. You possibly can solely accomplish that a lot saving your strategy to wealth.
I needed to flee the finance trade altogether and retire early. That’s after I began writing about FIRE for the modern worker. With the web making it doable to earn and dwell in non-traditional methods, I noticed an thrilling alternative to pursue a special way of life.
Paradoxically, it was 2009—through the world monetary disaster—when the digital nomad trend 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 property between $1,000,000 and $5 million. They are typically extremely educated, dual-income professionals who max out their 401(k)s, put money into low-cost index funds, and personal their major residence.
Most of their investments are in public markets and actual property, and so they usually really feel financially secure however not really 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 youngsters arrive.
You would possibly consider the on a regular basis wealthy particular person 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 would possibly fly Economic system Plus if they’re feeling notably spendy. They don’t seem to be consuming at Michelin-star eating places, besides perhaps 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 really 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 firstclass, and making excessive six-figure or seven-figure investments. Their youngsters principally go to non-public grade faculty, which they’ll comfortably afford with out monetary assist. Additionally they freely donate important sums of cash frequently.
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 doubtlessly higher alternative.
20% plus or minus strikes within the S&P 500 do not section them because the Richest Wealthy usually expertise rather more risky swings. In reality, the Richest Wealthy usually have investments go to zero as they continuously fortune hunt for the following multi-bagger funding. So usually, index funds and ETFs are a small proportion 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 of the people. That’s as a result of they have a tendency to reject the established order and do issues their very own approach. Consequently, they entice critics—generally a number of them—merely for not following societal norms.
They refuse to spend their complete careers working for another person to make that particular person 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 entrepreneurship and various investments. Index funds and ETFs? Boring. Too sluggish. 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 practice onerous, eat clear, and monitor each metric they’ll—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 just a few 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 non-public corporations
- 15% shares (half in index funds)
- 5% money and bonds
Instance 3 – $600 Million Web Value
- 5% possession in a large non-public cash administration agency as considered one of their senior execs
- 15% actual property
- 50% in different non-public corporations
- 10% shares (half in index funds)
- 20% money & bonds (~$180 million at 4% yields a whopping $6.4 million risk-free a yr in the present day)
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’ll park cash.
Web Value Breakdown By Ranges Of Wealth
Here is a very good 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 under is on the $1 million internet price degree. Roughly 25% of the mass prosperous’s internet price is of their primary 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 + Better Threat Than Common = Better Than Common Wealth
Constructing significant wealth usually comes right down to how a lot threat you’re taking—and the way early you’re 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. In the event you lose cash, you’ve nonetheless received 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. Quite 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 faculty and got here up with the concept. As a substitute, I waited three years till a world monetary disaster compelled me to cease being lazy.
However actually, I used to be too rooster poop to speculate 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 global financial crisis 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 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 when you’re nonetheless younger sufficient to bounce again from errors.
You’ve received to be a bit greedier than the common particular person, as a result of let’s face it: no person wants tens or lots of of hundreds of thousands—not to mention billions—to outlive or be comfortable. However should 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 net worth again in 2012, so I ended attempting to maximise my funding returns. Large mistake. The economic 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 income was too robust. From a pure returns perspective, that’ll most likely develop into one other mistake long run.
To stability 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 already know what? It feels nice. I get to sleep effectively at evening figuring out I’ve received safety on the draw back, whereas nonetheless taking part within the upside if the following 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. It’s best to too. However they’re greatest fitted to these on the normal 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 speculate 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. Nonetheless, I additionally recommend diversifying into actual property—an funding that mixes the revenue stability of bonds with higher upside potential.
Think about Fundrise, a platform that means that you can 100% passively put money into residential and industrial actual property. With over $3 billion in non-public actual property property below administration, Fundrise focuses on properties within the Sunbelt area, the place valuations are decrease, and yields are typically 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 possibly can put money into Fundrise Venture if you’d like publicity to non-public AI corporations like OpenAI, Anthropic, Anduril, and Databricks. AI is ready to revolutionize the labor market, get rid of 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, and so they’ve been a trusted associate 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 publication here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site in the present day. All the things is written primarily based off firsthand expertise.
