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 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 net. A good portion of you might have already surpassed the $1 million internet price mark, whereas many extra are closing in. Compared, the median family internet price in America is simply about $200,000.
With this in thoughts, it’s time to acknowledge a easy reality: the richest individuals 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 purpose is to realize monetary freedom earlier than the normal retirement age, or to achieve a prime 1% internet price, index funds alone in all probability 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 giant sums into index funds, or
- To take extra calculated dangers in different asset courses
Merely put, index fund investing is greatest for capital preservation and slower, steadier progress. A possible 10% annual return is implausible. However at that fee, 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 individuals.
Your life is finite. Most of us solely begin working full time 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.
Apart from getting fortunate, the one option to obtain monetary freedom prior to common is to take above-average dangers by investing past index funds and ETFs.
The Common Wealthy Versus the Richest Wealthy
First off, in the event you’re wealthy—or assume you’re wealthy—congratulations! You’re forward of at the very least 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 is appreciating what you might have.
That stated, it’s necessary to differentiate between two sorts of wealthy, as a result of they’re not the identical. The private finance neighborhood principally focuses on the primary variety—The Common Wealthy—partly as a result of it is simpler to clarify and attain, and partly as a result of many monetary influencers don’t have finance backgrounds.
Actually, the dearth of economic depth within the area was one of many predominant causes I launched Monetary Samurai in 2009. Again then, almost each blogger emphasised budgeting and saving their option to wealth. That’s stable recommendation for most individuals, nonetheless, I needed to transcend that.
I needed to flee the finance business altogether and retire early. That’s once I began writing about FIRE for the trendy employee. With the web making it doable to earn and reside in non-traditional methods, I noticed an thrilling alternative to pursue a unique life-style.
Satirically, it was 2009—through the international monetary disaster—when the digital nomad pattern actually took off, as tens of millions discovered themselves out of conventional jobs and trying to find 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, 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 individual 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 may 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 an alternative, 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, typically proudly owning second and third trip properties, flying first-class, and making seven-figure investments. Their youngsters principally go to personal grade college, which they will comfortably afford with out monetary support.
As an alternative, 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 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. Actually, the Richest Wealthy typically have investments go to zero as they repeatedly fortune hunt for the subsequent multi-bagger funding. So typically, 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 seen as eccentric, agitators, or downright bizarre by most people. That’s as a result of they have an inclination to reject the established order and do issues their very own method. Because of this, they appeal to critics—generally plenty of them—merely for not following societal norms.
They refuse to spend their whole careers working for another person to make that individual wealthy or group wealthy. As an alternative, they wager closely on themselves by entrepreneurship and various investments. Index funds and ETFs? Boring. Too gradual. These of us 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 exhausting, eat clear, and observe each metric they will—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 Value Breakdowns
Listed here are a couple of anonymized examples of the Richest Wealthy:
Instance 1 – $30 Million Internet 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 Internet Value
- 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 Internet Value
- 5% possession in an enormous personal cash administration agency as considered 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 obtained wealthy by solely investing in index funds. As an alternative, index funds are merely a low-risk asset class to them the place they will park cash.
Internet Value Breakdown By Ranges Of Wealth
This is internet price breakdown visualization by internet price ranges. The info 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 internet price degree. Roughly 25% of the mass prosperous’s internet 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+), at the very least 30% of their internet price is in enterprise pursuits. Intuitively, we all know that entrepreneurs dominate the wealthiest individuals on the planet. Subsequently, if you wish to be really wealthy, take extra entrepreneurial dangers and funding dangers.
Time + Larger Threat Than Common = Larger Wealth
Constructing significant wealth typically comes right down to how a lot danger you’re taking—and the way early you’re taking it. Whenever you’re younger, lean into greater bets. Put money into your self. Construct one thing. Personal one thing past simply index funds. Should you lose cash, you’ve nonetheless obtained 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. Fairly than taking part in it comparatively protected, 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, once I graduated enterprise college and got here up with the concept. 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 once 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 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 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 obtained to be a bit of greedier than the typical individual, as a result of let’s face it: no person wants tens or lots of of tens of millions—not to mention billions—to outlive or be glad. However in the event you’re aiming for that subsequent degree of wealth, you are going to should need it extra and take calculated dangers others received’t.
I used to be glad with a $3 million internet price again in 2012, so I ended attempting to maximise my funding returns. Massive mistake. The financial system boomed for the subsequent 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 sturdy. From a pure returns perspective, that’ll in all probability turn into 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 figuring out I’ve obtained safety on the draw back, whereas nonetheless collaborating within the upside if the subsequent 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 is best to too. However they’re greatest suited to these on the normal retirement observe 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 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 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.
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 typically increased. 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’ll be able to put money into Fundrise Enterprise in order for you publicity to personal AI corporations like OpenAI, Anthropic, Anduril, and Databricks. AI is ready to revolutionize the labor market, eradicate 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 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 probabilities of attaining monetary independence, be a 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 web site immediately. Every part is written based mostly off firsthand expertise.
