I really 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 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.
Based mostly on years of reader surveys and conversations, it is clear this neighborhood is among the wealthiest on the internet. A good portion of you will have already surpassed the $1 million web price mark, whereas many extra are closing in. Compared, the median family web price in America is barely about $200,000.
With this in thoughts, it’s time to acknowledge a easy reality: 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 achieve a high 1% web price, index funds alone in all probability 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 progress with average threat. A possible 10% annual return is implausible. 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 adequate for the richest folks.
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 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.
Apart from getting fortunate, the one option to obtain monetary freedom ahead of 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, for those who’re wealthy—or really feel wealthy—congratulations! You’re forward of no less than 90% of the world, which additionally means you’ve purchased your self extra freedom than most. Though it’s powerful, strive to not let somebody richer than your already-rich self get you down. The hot button is appreciating what you will have.
That stated, it’s essential to tell apart between two sorts of wealthy, as a result of they’re not the identical. The non-public finance neighborhood principally focuses on the primary form—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 sorts, comparable to Coast FIRE, which is de facto no completely different from a full-time worker who saves for retirement.
Actually, the shortage of monetary depth within the house was one of many most important causes I launched Monetary Samurai in 2009. Again then, almost each blogger solely emphasised budgeting and saving their option to wealth. That’s stable recommendation for most individuals, nonetheless, I needed to transcend that. You may solely achieve this a lot saving your option to wealth.
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 doable to earn and stay in non-traditional methods, I noticed an thrilling alternative to pursue a special way of life.
Mockingly, it was 2009—in the course of the world monetary disaster—when the digital nomad pattern 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 folks.
1. The Common Wealthy
This group consists of people or households with investable belongings between $1,000,000 and $5 million. They are typically extremely educated, dual-income professionals who max out their 401(ok)s, spend money on low-cost index funds, and personal their major 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 dwelling and would possibly fly Economic system Plus if they’re feeling notably spendy. They are not consuming at Michelin-star eating places, besides possibly for a uncommon special 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 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 properties, flying top quality, and making excessive six-figure or seven-figure investments. Their youngsters principally go to personal grade college, which they’ll comfortably afford with out monetary support. Additionally they freely donate vital sums of cash usually.
As an alternative of investing principally 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, 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 typically expertise far more risky swings. Actually, the Richest Wealthy typically have investments go to zero as they repeatedly fortune hunt for the following multi-bagger funding. So typically, index funds and ETFs are a small proportion of their general web price (
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 means. In consequence, they entice critics—typically plenty of them—merely for not following societal norms.
They refuse to spend their complete 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 guess closely on themselves by way of entrepreneurship and different investments. Index funds and ETFs? Boring. Too sluggish. These of us would moderately 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—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 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 certainly 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 immediately)
None of them received 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 web price breakdown visualization by web price ranges. The information is from the Federal Reserve Board Of Shopper Funds, which comes out each three years.
Let’s assume the mass prosperous represented within the chart beneath is on the $1 million web price stage. Roughly 25% of the mass prosperous’s web price 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+), no less than 30% of their web price is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest folks on the planet. Due to this fact, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Higher Danger Than Common = Higher Than Common 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. Once 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 received 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. Moderately than taking part in it comparatively secure, 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 worldwide monetary disaster compelled me to cease being lazy.
However truthfully, 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 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 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 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 when 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 hundreds of thousands—not to mention billions—to outlive or be completely satisfied. However for those who’re aiming for that subsequent stage 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 web price again in 2012, so I ended making an attempt to maximise my funding returns. Huge mistake. The financial system boomed for the following 10 years, and I missed out on larger 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 become one other mistake long run.
To steadiness 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 effectively at night time realizing I’ve received safety on the draw back, whereas nonetheless collaborating within the upside if the following huge factor takes off.
Closing Thought On Investing In Index Funds And ETFs
Index funds are nice. I personal a number of seven figures price of them. You need to too. However they’re greatest suited to these on the standard retirement monitor or these trying 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 folks do it.
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Diversify Your Retirement Investments
Shares and bonds are traditional staples for retirement investing. Nevertheless, I additionally recommend diversifying into actual property—an funding that mixes the revenue stability of bonds with larger 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 underneath administration, Fundrise focuses on properties within the Sunbelt area, the place valuations are decrease, and yields are typically larger. 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 spend money on Fundrise Enterprise if you would like publicity to personal AI corporations like OpenAI, Anthropic, Anduril, and Databricks. AI is ready to revolutionize the labor market, remove jobs, and considerably increase 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 effectively.
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 possibilities of attaining monetary independence, be 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 immediately. All the pieces is written based mostly off firsthand expertise.
