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, 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.
Primarily based on years of reader surveys and conversations, it is clear this group is likely one of the wealthiest on the internet. A good portion of you might 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 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 standard retirement age, or to succeed in a high 1% web price, index funds alone most likely received’t get you there earlier than age 60.
To get wealthy sooner, you want both:
- An enormous quantity of revenue to constantly make investments massive sums into index funds, or
- To take extra calculated dangers in different asset courses
Merely put, index fund investing is finest for capital preservation and slower, steadier progress with average 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 a lot 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 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 in a position to go away the workforce for good in 2012 at age 34. Don’t neglect, 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.
In addition to getting fortunate, the one solution to obtain monetary freedom before 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, for those who’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 robust, attempt to not let somebody richer than your already-rich self get you down. The secret’s appreciating what you might have.
That stated, it’s essential to differentiate between two varieties 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 provide you with loopy sub-FIRE sorts, equivalent to Coast FIRE, which is admittedly no totally different from a full-time worker who saves for retirement.
In actual fact, the shortage of monetary depth within the area was one of many most important causes I launched Monetary Samurai in 2009. Again then, almost each blogger solely emphasised budgeting and saving their solution to wealth. That’s strong recommendation for most individuals, nonetheless, I wished to transcend that. You may solely achieve this a lot saving your solution 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 potential to earn and dwell in non-traditional methods, I noticed an thrilling alternative to pursue a distinct way of life.
Sarcastically, it was 2009—through the international monetary disaster—when the digital nomad development actually took off, as thousands and thousands discovered themselves out of conventional jobs and trying to find one thing new.
Now let’s particular the 2 varieties of wealthy folks.
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(ok)s, put money into low-cost index funds, and personal their main residence.
Most of their investments are in public markets and actual property, and so they 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 may 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 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 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 folks with $10 million-plus in investable property, typically proudly owning second and third trip houses, flying first-class, and making excessive six-figure or seven-figure investments. Their youngsters principally go to non-public grade college, which they’ll comfortably afford with out monetary support. Additionally they freely donate important sums of cash commonly.
As a substitute of investing principally in index funds to get wealthy, their cash got here from:
They may 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, nearly 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. 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 share of their general web 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 people. That’s as a result of they have a tendency to reject the established order and do issues their very own means. In consequence, they entice critics—typically a lot of 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 wager closely on themselves by means of entrepreneurship and different investments. Index funds and ETFs? Boring. Too sluggish. These people would relatively 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 prepare onerous, eat clear, and observe 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 Internet Price Breakdowns
Listed here are just a few anonymized examples of the Richest Wealthy:
Instance 1 – $30 Million Internet 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 Internet 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 Internet Price
- 5% possession in an enormous non-public cash administration agency as one in all 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 12 months right this moment)
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.
Internet Price Breakdown By Ranges Of Wealth
This 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 under is on the $1 million web price stage. Roughly 25% of the mass prosperous’s web price 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 web price is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest folks on this planet. Due to this fact, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Larger Danger Than Common = Larger Than Common Wealth
Constructing significant wealth typically comes all the way down to how a lot threat you’re taking—and the way early you’re taking it. If you’re younger, lean into larger bets. Spend money on your self. Construct one thing. Personal one thing past simply index funds. If you happen to 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. Somewhat than taking part in 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 college and got here up with the thought. As a substitute, I waited three years till a world 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 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 operate 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 whilst you’re nonetheless younger sufficient to bounce again from errors.
You’ve received to be a bit of greedier than the common 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 comfortable. However for those who’re aiming for that subsequent stage of wealth, you are going to need to need it extra and take calculated dangers others received’t.
I used to be glad with a $3 million web price 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 revenue was too robust. From a pure returns perspective, that’ll most likely change 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 recognize what? It feels nice. I get to sleep nicely at evening realizing I’ve received safety on the draw back, whereas nonetheless taking part 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 price of them. You need to too. However they’re finest suited to these on the standard retirement observe 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 take a position 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 basic staples for retirement investing. Nevertheless, I additionally recommend 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 usually greater. 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’ll be able to put money into Fundrise Enterprise in order for you publicity to non-public AI corporations like OpenAI, Anthropic, Anduril, and Databricks. AI is ready to revolutionize the labor market, eradicate jobs, and considerably increase 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, and so they’ve been a trusted companion 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 e-newsletter right here. Monetary Samurai started in 2009 and is the main independently-owned private finance website right this moment. All the things is written primarily based off firsthand expertise.
