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    Home » The Richest People Are Not Index Fund Fanatics – Why Are You?
    Finance

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

    FreshUsNewsBy FreshUsNewsJuly 18, 2025No Comments13 Mins Read
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    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, 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 likely one of the wealthiest on the internet. A good portion of you will have already surpassed the $1 million net worth mark, whereas many extra are closing in. As compared, the median family web value in America is simply 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 objective is to attain monetary freedom earlier than the normal retirement age, or to succeed in a top 1% net worth, index funds alone most likely received’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 courses

    Merely put, index fund investing is greatest for capital preservation and slower, steadier development. 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 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 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 leave 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 method to obtain monetary freedom earlier than common is to take above-average dangers by investing past index funds and ETFs. Wanting again, I want I had taken extra dangers.

    The Common Wealthy Versus the Richest Wealthy

    First off, if you happen to’re wealthy—or feel rich—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, attempt 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 necessary to differentiate between two forms of wealthy, as a result of they’re not the identical. The non-public finance neighborhood principally focuses on the primary type—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.

    In actual fact, the dearth of economic depth within the area was one of many primary causes I launched Monetary Samurai in 2009. Again then, practically each blogger solely emphasised budgeting and saving their method to wealth. That’s stable recommendation for most individuals, nevertheless, I needed to transcend that. You possibly can solely accomplish that a lot saving your method to wealth.

    I needed to flee the finance business altogether and retire early. That’s once I began writing about FIRE for the modern worker. With the web making it attainable to earn and stay in non-traditional methods, I noticed an thrilling alternative to pursue a special life-style.

    Paradoxically, it was 2009—throughout the international monetary disaster—when the digital nomad trend 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 forms of wealthy folks.

    1. The Common Wealthy

    This group consists of 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(k)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 actually wealthy. Some would describe this because the mass affluent class. Many began off or are HENRYs (High Earners Not Rich Yet), 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 dwelling and would possibly fly Economic system Plus if they’re feeling notably spendy. They don’t seem to be 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 feel rich. As a substitute, they really feel nearer to the middle class than to the actually rich.

    2. The Richest Wealthy

    These are the folks with $10 million-plus in investable assets, usually proudly owning second and third trip houses, flying first-class, and making excessive six-figure or seven-figure investments. Their children principally go to personal grade faculty, which they will comfortably afford with out monetary help. In addition they freely donate important sums of cash usually.

    As a substitute of investing principally in index funds to get wealthy, their cash got here from:

    They could 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 doubtlessly higher alternative.

    20% plus or minus strikes within the S&P 500 do not part them because the Richest Wealthy usually expertise rather more unstable swings. In actual fact, the Richest Wealthy usually have investments go to zero as they continuously 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 method. Consequently, they appeal to critics—typically numerous them—merely for not following societal norms.

    They refuse to spend their complete careers working for another person to make that particular person wealthy or group wealthy. They don’t seem to be spending a fortune to get an MBA solely to work for another person. As a substitute, they wager closely on themselves via entrepreneurship and various investments. Index funds and ETFs? Boring. Too gradual. These people 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 laborious, eat clear, and observe each metric they will—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.

    Supply: https://www.knightfrank.com/analysis/article/2021-03-01-how-deep-do-your-pockets-need-to-be-to-get-in-you-in-the-top-01-of-the-worlds-wealthiest

    Actual-World Internet Value Breakdowns

    Listed below are just a few 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 non-public firms
    • 15% shares (half in index funds)
    • 5% money and bonds
    The top 1% by wealth in America versus Top 0.01%
    Supply: https://www.chicagobooth.edu/assessment/never-mind-1-percent-lets-talk-about-001-percent

    Instance 3 – $600 Million Internet Value

    • 5% possession in a large non-public cash administration agency as one among their senior execs
    • 15% actual property
    • 50% in different non-public firms
    • 10% shares (half in index funds)
    • 20% money & bonds (~$180 million at 4% yields a whopping $6.4 million risk-free a yr at the moment)

    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 will park cash.

    Internet Value Breakdown By Ranges Of Wealth

    This is 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 degree. Roughly 25% of the mass prosperous’s web value is of their primary 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 value 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 actually wealthy, take extra entrepreneurial dangers and funding dangers.

    The Richest People Are Not Index Fund Fanatics - Net worth composition by levels of wealth

    Time + Better Threat Than Common = Better Than Common Wealth

    Constructing significant wealth usually comes all the way down to how a lot threat you’re taking—and the way early you’re taking it. While you’re younger, lean into larger bets. Spend money on 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 might’ve taken extra calculated dangers in my 20s and early 30s. Relatively than enjoying it comparatively secure, I might’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 might have began Monetary Samurai in 2006, once I graduated enterprise faculty and got here up with the thought. As a substitute, I waited three years till a world monetary disaster compelled me to cease being lazy.

    However actually, I used to be too hen poop to speculate greater than $25,000 in anyone title—even once I had the capital to place $100,000 in every earlier than 2012. The scars from the dot-com bust and the global financial crisis 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 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 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 obtained to be slightly greedier than the common particular person, as a result of let’s face it: no person wants tens or tons of of hundreds of thousands—not to mention billions—to outlive or be comfortable. However if you happen to’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 net worth again in 2012, so I finished attempting to maximise my funding returns. Massive 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 income was too sturdy. From a pure returns perspective, that’ll most likely develop into one other mistake long run.

    To steadiness issues out, I’ve deployed a dumbbell strategy—anchoring with Treasury payments and bonds on one finish, whereas taking bolder swings in private AI companies on the opposite. And what? It feels nice. I get to sleep properly at night time figuring out I’ve obtained safety on the draw back, whereas nonetheless taking part within the upside if the subsequent massive 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. It’s 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 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.

    Free Monetary Evaluation Supply From Empower

    You probably have over $100,000 in investable property—whether or not in financial savings, taxable accounts, 401(okay)s, or IRAs—you will get a free monetary check-up from an Empower monetary skilled by signing up here. It’s a no-obligation method to have a seasoned knowledgeable, who builds and analyzes portfolios for a residing, assessment your funds. 

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

    The assertion is supplied to you by Monetary Samurai (“Promoter”) who has entered right into a written referral settlement with Empower Advisory Group, LLC (“EAG”). Click on here to be taught 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 earnings stability of bonds with higher upside potential.

    Take into account Fundrise, a platform that permits you to 100% passively spend money on residential and industrial actual property. With over $3 billion in non-public actual property property below 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 possibly can spend money on Fundrise Venture if you would like publicity to personal AI firms like OpenAI, Anthropic, Anduril, and Databricks. AI is about to revolutionize the labor market, get rid of jobs, and considerably increase 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 properly.

    Fundrise investment amount by Financial Samurai, Sam Dogen. New $112,000 investment on June 20, 2025

    I’ve personally invested over $400,000 with Fundrise, they usually’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 attaining monetary independence, be part of 60,000+ readers and subscribe to my free Monetary Samurai e-newsletter here. Monetary Samurai started in 2009 and is the main independently-owned private finance web site at the moment. Every little thing is written based mostly off firsthand expertise. 



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