The Richest Folks Are Not Index Fund Fanatics – Why Are You?

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, 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 without doubt one of 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. As 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 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 objective is to attain monetary freedom earlier than the standard retirement age, or to achieve a high 1% web price, index funds alone most likely gained’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 with reasonable threat. A possible 10% annual return is incredible. However at that fee, 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 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 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 depart 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 strategy 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, should you’re wealthy—or really feel 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 will have.

That stated, it’s vital to tell apart between two forms of wealthy, as a result of they’re not the identical. The non-public finance group 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, equivalent to Coast FIRE, which is actually no totally different from a full-time worker who saves for retirement.

In truth, the dearth of monetary depth within the house was one of many most important causes I launched Monetary Samurai in 2009. Again then, practically each blogger solely emphasised budgeting and saving their strategy to wealth. That’s strong recommendation for most individuals, nevertheless, I wished to transcend that. You may solely achieve this 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 fashionable employee. With the web making it potential to earn and stay in non-traditional methods, I noticed an thrilling alternative to pursue a distinct life-style.

Paradoxically, it was 2009—in the course of the world monetary disaster—when the digital nomad pattern 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 forms of wealthy folks.

1. The Common Wealthy

This group contains people or households with investable belongings between $1,000,000 and $5 million. They are usually extremely educated, dual-income professionals who max out their 401(ok)s, spend money on 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 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 typically decelerate their tempo of wealth accumulation as soon as children 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 residence 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 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 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 belongings, typically proudly owning second and third trip properties, flying firstclass, and making excessive six-figure or seven-figure investments. Their children largely go to personal grade college, which they’ll comfortably afford with out monetary assist. Additionally they freely donate vital sums of cash repeatedly.

As a substitute of investing largely 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 part them because the Richest Wealthy typically expertise way more unstable swings. In truth, 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 (

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 a tendency to reject the established order and do issues their very own method. Consequently, 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. 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 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.

Most of the Richest Wealthy additionally go all-in on optimizing their our bodies and minds. They prepare arduous, 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 Web Value Breakdowns

Listed here are just a few anonymized examples of the Richest Wealthy:

Instance 1 – $30 Million Web 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 Web Value

• 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 Value

• 5% possession in an enormous non-public cash administration agency as one in every of 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 immediately)

None of them obtained 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 Value Breakdown By Ranges Of Wealth

This is web price breakdown visualization by web price 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 under is on the $1 million web price degree. 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.

As compared, for the Richest Wealthy ($10M+), at the very least 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 + Larger Threat 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. Whenever you’re younger, lean into larger 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 obtained time to earn it again—after which some.

If I might 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 concept. 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 hen poop to take a position 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 Glad 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 somewhat greedier than the common individual, as a result of let’s face it: no one wants tens or tons of of thousands and thousands—not to mention billions—to outlive or be joyful. However should you’re aiming for that subsequent degree of wealth, you are going to should need it extra and take calculated dangers others gained’t.

I used to be glad with a $3 million web price again in 2012, so I ended making an attempt to maximise my funding returns. Huge mistake. The economic system boomed for the following 10 years, and I missed out on better 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 most likely transform 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 non-public AI corporations on the opposite. And you recognize what? It feels nice. I get to sleep properly at evening understanding I’ve obtained safety on the draw back, whereas nonetheless taking part within the upside if the following huge 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 fitted to these on the standard retirement observe or these seeking 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.

Free Monetary Evaluation Provide From Empower

In case you have over $100,000 in investable belongings—whether or not in financial savings, taxable accounts, 401(ok)s, or IRAs—you will get a free monetary check-up from an Empower monetary skilled by signing up right here. It’s a no-obligation strategy to have a seasoned professional, who builds and analyzes portfolios for a residing, evaluation your funds. 

A contemporary set of eyes might uncover hidden charges, inefficient allocations, or alternatives to optimize—supplying you with better readability and confidence in your monetary plan. The richest folks on the planet get repeatedly monetary checkups.

The assertion is offered to you by Monetary Samurai (“Promoter”) who has entered right into a written referral settlement with Empower Advisory Group, LLC (“EAG”). Click on right here to study extra.

Diversify Your Retirement Investments

Shares and bonds are basic staples for retirement investing. Nevertheless, I additionally counsel diversifying into actual property—an funding that mixes the revenue stability of bonds with better upside potential.

Contemplate Fundrise, a platform that lets you 100% passively spend money on residential and industrial actual property. With over $3 billion in non-public actual property belongings below administration, Fundrise focuses on properties within the Sunbelt area, the place valuations are decrease, and yields are usually increased. 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 spend money on Fundrise Enterprise if you’d like publicity to personal 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 phases of the AI revolution, and I need to guarantee I’ve sufficient publicity—not only for myself, however for my kids’s future as properly.

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 probabilities of reaching 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. Every thing is written based mostly off firsthand expertise.