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, 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.
Primarily based on years of reader surveys and conversations, it is clear this group is among the wealthiest on the internet. A good portion of you’ve got already surpassed the $1 million web value mark, whereas many extra are closing in. 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 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 attain monetary freedom earlier than the normal retirement age, or to achieve 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 persistently make investments giant 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 danger. 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 lots 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 in a position to go away 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 method to obtain monetary freedom before 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, in case you’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 powerful, attempt to not let somebody richer than your already-rich self get you down. The hot button is appreciating what you’ve got.
That mentioned, it’s essential to tell apart between two sorts of wealthy, as a result of they’re not the identical. The private finance group principally focuses on the primary form—The Common Wealthy—partly as a result of it is simpler to clarify and attain, and partly as a result of many monetary creators don’t have finance backgrounds. We give you loopy sub-FIRE sorts, reminiscent of Coast FIRE, which is admittedly no totally different from a full-time worker who saves for retirement.
In truth, the dearth of economic depth within the area was one of many primary causes I launched Monetary Samurai in 2009. Again then, almost each blogger solely emphasised budgeting and saving their method to wealth. That’s stable recommendation for most individuals, nonetheless, I wished to transcend that. You possibly can solely achieve this a lot saving your method to wealth.
I wished to flee the finance business 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 distinct way of life.
Sarcastically, it was 2009—through the world monetary disaster—when the digital nomad development actually took off, as thousands and 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 usually 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, and so they usually really feel financially secure 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 usually decelerate their tempo of wealth accumulation as soon as children 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 house and would possibly fly Financial 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 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 really rich.
2. The Richest Wealthy
These are the individuals with $10 million-plus in investable property, usually proudly owning second and third trip properties, flying firstclass, and making excessive six-figure or seven-figure investments. Their children principally go to non-public grade faculty, which they’ll comfortably afford with out monetary assist. In addition they freely donate vital sums of cash recurrently.
As a substitute of investing principally in index funds to get wealthy, their cash got here from:
They could personal index funds, but it surely 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 probably higher alternative.
20% plus or minus strikes within the S&P 500 do not section them because the Richest Wealthy usually expertise far more unstable swings. In truth, the Richest Wealthy usually have investments go to zero as they repeatedly fortune hunt for the subsequent multi-bagger funding. So usually, index funds and ETFs are a small proportion 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 manner. Because of this, they appeal to critics—generally numerous them—merely for not following societal norms.
They refuse to spend their total careers working for another person to make that particular person wealthy or group wealthy. They are not spending a fortune to get an MBA solely to work for another person. As a substitute, they guess closely on themselves by means of entrepreneurship and various investments. Index funds and ETFs? Boring. Too sluggish. These people would somewhat 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 laborious, 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 Price Breakdowns
Listed below are a couple 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 corporations
15% shares (half in index funds)
5% money and bonds
Instance 3 – $600 Million Web Price
5% possession in a large personal cash administration agency as one in all 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 at present)
None of them acquired 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 Price Breakdown By Ranges Of Wealth
This 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 under is on the $1 million web value stage. Roughly 25% of the mass prosperous’s web 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 web 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 really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Better Danger Than Common = Better Than Common Wealth
Constructing significant wealth usually comes right down to how a lot danger you are taking—and the way early you are taking it. Once you’re younger, lean into greater 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 acquired time to earn it again—after which some.
If I may rewind the clock, I might’ve taken extra calculated dangers in my 20s and early 30s. Relatively than taking part in 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 faculty and got here up with the thought. As a substitute, I waited three years till a worldwide 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 anybody 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 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 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 somewhat greedier than the typical particular person, as a result of let’s face it: no person wants tens or lots of of thousands and thousands—not to mention billions—to outlive or be joyful. However in case you’re aiming for that subsequent stage of wealth, you are going to need to 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. 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 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 you already know what? It feels nice. I get to sleep nicely at night time realizing I’ve acquired safety on the draw back, whereas nonetheless taking part within the upside if the subsequent 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. You must 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 sooner 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 traditional staples for retirement investing. Nonetheless, I additionally recommend diversifying into actual property—an funding that mixes the earnings 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 personal actual property property underneath 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 reduce cycle, actual property demand is poised to develop within the coming years.
As well as, you may 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 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, 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 probabilities of attaining 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 website at present. All the pieces is written primarily based off firsthand expertise.
