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, contemplate 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 without doubt one of the wealthiest on the net. A good portion of you will have already surpassed the $1 million internet value mark, whereas many extra are closing in. Compared, the median family internet value 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 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 standard retirement age, or to achieve a high 1% internet value, index funds alone in all probability gained’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 greatest for capital preservation and slower, steadier progress with reasonable threat. A possible 10% annual return is unbelievable. However at that charge, your funding solely doubles each 7.2 years. Hey, I am going to take it, and so would lots of you. Nevertheless, 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 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.
Moreover getting fortunate, the one strategy 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 extra braveness.
The Common Wealthy Versus the Richest Wealthy
First off, in the event you’re wealthy—or really feel wealthy—congratulations! You’re forward of a minimum of 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 will have.
That stated, it’s vital to tell apart between two sorts of wealthy, as a result of they’re not the identical. The private finance neighborhood 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 creators don’t have finance backgrounds. We give you loopy sub-FIRE varieties, akin to Coast FIRE, which is admittedly no completely different from a full-time worker who saves for retirement.
In actual fact, the dearth of economic 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 strategy 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 strategy to wealth.
I wished to flee the finance trade 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 reside in non-traditional methods, I noticed an thrilling alternative to pursue a distinct way of life.
Satirically, it was 2009—throughout the world monetary disaster—when the digital nomad development actually took off, as hundreds of thousands discovered themselves out of conventional jobs and looking for one thing new.
Now let’s particular the 2 sorts 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 main residence.
Most of their investments are in public markets and actual property, they usually usually 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 youngsters 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 Economic system Plus if they’re feeling notably spendy. They are not consuming at Michelin-star eating places, besides possibly 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 actually rich.
2. The Richest Wealthy
These are the individuals with $10 million-plus in investable property, typically proudly owning second and third trip properties, flying firstclass, and making excessive six-figure or seven-figure investments. Their youngsters largely go to non-public grade college, which they’ll comfortably afford with out monetary support. Additionally they freely donate vital sums of cash recurrently.
As an alternative 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 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 part them because the Richest Wealthy typically expertise far more risky swings. In actual fact, 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 proportion 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 people. That’s as a result of they have a tendency to reject the established order and do issues their very own method. Consequently, they entice 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 are not spending a fortune to get an MBA solely to work for another person. As an alternative, they wager closely on themselves by entrepreneurship and different investments. Index funds and ETFs? Boring. Too gradual. These people would reasonably 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 arduous, eat clear, and monitor 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 Web Price Breakdowns
Listed here 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 non-public corporations
- 15% shares (half in index funds)
- 5% money and bonds
Instance 3 – $600 Million Web Price
- 5% possession in an enormous non-public cash administration agency as one among 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 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’ll park cash.
Web Price Breakdown By Ranges Of Wealth
Here is an excellent internet value breakdown visualization by internet value 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 value stage. Roughly 25% of the mass prosperous’s internet value 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+), a minimum of 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 + Higher Threat Than Common = Higher Than Common Wealth
Constructing significant wealth typically 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 greater bets. Spend money on your self. Construct one thing. Personal one thing past simply index funds. When you lose cash, you’ve nonetheless acquired 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 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 might have began Monetary Samurai in 2006, after I graduated enterprise college and got here up with the concept. As an alternative, I waited three years till a worldwide monetary disaster pressured me to cease being lazy.
However truthfully, I used to be too rooster poop to take a position greater than $25,000 in anybody 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 world 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 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 Happy 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 a little bit greedier than the typical individual, as a result of let’s face it: no one 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 glad with a $3 million internet value again in 2012, so I finished making an attempt 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 revenue was too robust. From a pure returns perspective, that’ll in all probability develop into 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 non-public AI corporations on the opposite. And you already know what? It feels nice. I get to sleep nicely at evening understanding I’ve acquired safety on the draw back, whereas nonetheless taking part within the upside if the following large 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’s best to too. However they’re greatest fitted to these on the standard retirement monitor or these seeking to protect wealth.
If you wish to obtain monetary freedom sooner 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. Nevertheless, I additionally counsel diversifying into actual property—an funding that mixes the revenue stability of bonds with higher upside potential.
Take into account Fundrise, a platform that lets you 100% passively put money into residential and industrial actual property. With over $3 billion in non-public actual property property beneath 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 Enterprise if you need publicity to non-public AI corporations 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 kids’s future as nicely.
I’ve personally invested over $400,000 with Fundrise, they usually’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 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 right this moment. Every little thing is written based mostly off firsthand expertise.
