It's safe to assume the vast majority of you reading Financial Samurai want to be rich. I trust those of you who've been reading this site between 2009 and 2012, when I was writing heavily about investment strategies, have indeed become much richer. The compounding forces since then have been enormous.
We are probably one of the richest communities on the internet today based on all the surveys I've conducted. For example, 35% of you have a net worth of between $300,000 – $1 million. While 25% of you have a net worth over $1 million. Not bad compared to the median net worth figures who have less than $100,000.
Despite our good fortune, it's worth discussing the two levels of rich. Because since I started this site, it's clear one level of rich has pulled far ahead. And that next level of rich didn't get rich by investing in index funds. Instead, the richer level uses index funds as a means to preserve their wealth.
Index Funds And The Rich
I know we all love index funds. They are the personal finance community's #1 recommendation for where to invest our money in stocks. Index funds have minimal fees and are easy to own. However, it's hard to get really rich off index funds alone.
In addition, if you want to achieve financial independence well before the traditional retirement age of 65, investing only in index funds is probably not going to cut it. The vast majority of people who are Fat FIRE did not get there by owning index funds and ETFs either.
The only way to get rich sooner off index funds is to consistently invest large sums of money. But that's kind of like saying to get richer, start with a lot of money. Index fund investing is more for capital preservation once you get rich.
The reality is, there's a whole other level of rich that has little to do with investing in index funds. As one centi-millionaire once told me, “Investing in index funds is what middle-class people do who don't know what to do.”
My View On Index Funds As An Early Retiree
I'm a fan of index funds. Over a 10-year period, the vast majority of active fund managers underperform their respective indices due to high fees and poor investing acumen. However, as I look back on what enabled me to leave my job in 2012 and stay unemployed, it wasn't index funds.
I view investing in index funds as a low-cost, lower-risk way of investing in public equities. Investing in an S&P 500 index fund or ETF is my default setting when I'm buying the dip, but don't have strong conviction.
I understand the downside of investing in an S&P 500 index fund or ETF. A typical bear market lasts about a year and has about a 35% drawdown. I'm good with that.
Investing in an S&P 500 index fund is like investing in a super-tanker. It doesn't move very fast – at historically a 10% annual return – but it also doesn't easily veer off course or sink to the bottom of the ocean either. Sooner or later, the super-tanker will get to its destination.
Index funds have acted like a pleasant tailwind pushing me more towards an ever-moving financial independence number. But they weren't the difference maker. I invest in index funds as a default choice when I DON'T know about a better investment.
The Two Levels Of Rich
Now let's discuss the rich, and the really rich with regards to index fund investing.
1) First Level Rich: The Mass Affluent Who Invest In Index Funds
The first level of rich is what I consider the mass affluent class. The mass affluent class is highly educated, motivated, and upwardly mobile. The mass affluent class is considered rich by general standards, but often doesn't feel rich.
Today, the mass affluent class has investable assets of between $500K – $3 million. The mass affluent class also has a net worth of between $500K – $5 million. The range is largely dependent on age, location, and household (single versus couple). HENRYs are part of the mass affluent class.
The mass affluent class loves investing in stock index funds and real estate. They've got good jobs, often with six-figure household incomes. Usually less than 20% of their investable assets is invested in alternative investments, including cryptocurrencies.
For the most part, the mass affluent class is a great place to be. You're comfortable and always have hope for a wealthier future. So long as the mass affluent class keeps working, they keep saving and investing in index funds. Eventually, they'll feel rich, but in a slow and steady way.
2) Second Level Rich: The Truly Rich
The second level of rich is what most people think about when they hear the word rich. We're talking vacation homes in the Hamptons, first-class flights, $100,000+ automobiles, and generous donations to charity where your name appears on a wall.
Let's call the second level of rich the Truly Rich. The truly rich have investable assets of at least $5 – $10 million and a net worth of at least $10 – $25 million, depending on location, age, and household.
In a bull market, the truly rich crush it with multi-million dollar gains a year. Conversely, in a bear market, the truly rich get beat up the most. Back in 2009, we were all relatively much wealthier not because we made more money, but because people like Warren Buffet lost tens of billions of dollars in individual wealth.
The truly rich have a minority of their investable assets and net worth in index funds. Instead, the truly rich have the majority of their net worth in their business and other business ventures. Not only do the Truly Rich own businesses they started, they also aggressively invest in private growth companies through venture capital funds or directly.
In terms of wealth creation, the top 0.1% and 0.01% have trounced those in the top 1%, never mind the 99%. For those folks with incomes and net worths between my two definitions, you are free to call yourself whatever you want.
Net Worth Breakdown By Levels Of Wealth
Here's a good net worth breakdown visualization by net worth levels. The data is from the Federal Reserve Board Of Consumer Finances, which comes out every three years.
Let's assume the mass affluent represented in the chart below is at the $1 million net worth level. Roughly 25% of the mass affluent's net worth is in their primary residence, 15% is in retirement accounts, 10% is in real estate investments, and 12% is in business interests.
In comparison, for the truly rich ($10M+), at least 30% of their net worth is in business interests. Intuitively, we know that entrepreneurs dominate the wealthiest people in the world. Therefore, if you want to be truly rich, take more entrepreneurial risks.
Index Funds Are Mostly For The Middle Class And Mass Affluent
I actually don't know a single person who is worth over $10 million who has a majority of their investment assets, let alone net worth, in index funds. Conversely, I know plenty of people with net worths below $5 million who either only invest in index funds or only have a combination of index funds and real estate.
Here is the rough net worth breakdown of three truly rich people I know. Perhaps you can share your own insights too in the comments below.
Profiles Of The Truly Rich (Next Level Wealth)
Truly Rich Net Worth Composition #1: Net worth of about $30 million. 35% is his ownership stake in his online business. 30% is in investment real estate. 20% is in public equities (60% index funds, 40% individual names). 10% is in various private funds. 5% is in municipal bonds and other low-risk investments.
Truly Rich Net Worth Composition #2: Net worth of about $100 million. 40% is his ownership stake in his private equity firm as a partner. 10% is in various private companies. 15% is in public stocks (50% index funds). 30% is in real estate. 5% is in various risk-free investments.
Truly Rich Net Worth Composition #3: Net worth of about $250 million. 30% is invested in private funds spread across venture capital, venture debt, private equity, and private real estate. 40% is his ownership stake in his private money management firm. 20% in physical real estate, including two vacation properties. 10% is in municipal bonds and other stable investments.
Then I know one fella who was roughly worth “only” $100 million 10 years ago and now he's worth over $3.5 billion through savvy investments. He's an excellent tennis player too!
None of these examples involve investing in index funds to get rich. They all got truly rich by building a business while owning lots of equity. Here are more profiles of people with a $20 million net worth and how they got there.
Getting Rich Is About Time And Risk Tradeoff
If I could rewind time, I would have taken a lot more risk. I spent a lot of time fortune hunting in my 20s, but then slowed way down by 30 to focus on my career.
Blowing yourself up in your 20s and early 30s is not that big of a deal. You can always earn back your losses. But once you're in your 40s or later, unless you've already amassed a decent fortune, it's harder to take more risks to get rich. If you have children and parents to take care of, you will be forced to be more risk-averse.
When I was 23, I had a lucky win in 2000 when I invested $3,000 in VCSY, a Chinese internet company. It grew by 50X to $150,000. Oh man how I wish I had invested more. I look back now and can't believe how little I had invested.
On the other hand, if I had invested $3,000 in an S&P 500 index fund back in early 2000, it would be worth about $9,200 today. Not bad, but not nearly the $150,000 that I would go on to reinvest in San Francisco property in 2003.
Although it felt risky buying property at age 26 with a $465,000 mortgage, I should have leveraged up even more! At the time, I was looking for a much nicer property that was 80% more expensive. But I was too scared to take on so much debt despite a growing career.
As you grow older and wealthier, you'll probably wish you had taken more risks too. To make more money, you need to be more intentional. Set aside a specific amount of money to take greater risks. Actually spend time every day or week looking for homers investments. Not doing so was one of my regrets during the pandemic.
Loading ...Index Funds Are Great For Those On The Traditional Path To Retirement
If you want to retire closer to the traditional retirement age of 60-65, then index funds are great. A 10% average annual return is what it is. It takes 7.2 years to double your money at that return percentage.
Being happy, plump, and free in your 60s is not bad! Although, future returns may be much lower, thereby delaying retirement.
If you want to achieve financial freedom sooner, then you're going to have to take more risks beyond index funds. As you move out on the risk curve, you will gradually start to feel like investing in index funds is one of the lower-risk investments you can make.
In addition to investing in index funds, you may want to take more risk by:
- Starting your own business
- Investing in real estate beyond your primary residence
- Concentrating your investment positions
- Investing in other private businesses through venture capital
- Investing in more speculative assets like small caps and cryptocurrencies
- Sacrificing more family time so you can reach the top of the corporate ladder (tough one)
Heads up: If you're looking to invest in private growth companies, check out the Fundrise venture product. The investment minimum is only $10 and you can invest in AI and other fast-growing tech companies.
I've personally invested $140,000 in the product to gain more artificial intelligence exposure given it is the future. Fundrise is also a long-time sponsor of Financial Samurai.
Satisfaction Will Prevent You From Getting Richer
In terms of trying to get rich, I have this “problem” I've faced all my life. I don't have a top gear to grind for maximum wealth potential for a very long time. Instead, I'm more easily satisfied.
When I was in high school, I didn't train harder in tennis because I was satisfied with just winning at the high school level. The thrill was good enough! Winning junior tournaments or playing college tennis didn't interest me. Therefore, I never lived up to my potential until I started playing league tennis again in my 30s.
At work, I wanted to make Managing Director. But after just one year of not getting promoted to MD at age 33, I decided to move on by doing my own thing. Normal people would keep trying for three to five years to get promoted, since 33 was on the young side. But I didn't care anymore. I just needed to try once to minimize regret.
I left banking along with millions of dollars in foregone compensation at age 34. Why? Because I was satisfied living on ~$80,000 a year in passive income in exchange for more freedom.
With Financial Samurai, I know I could grow this site larger by hiring a lot of freelance writers. I can add on lots of features, create expensive e-courses, and more to make lots more money. But what's the point? To go back to feeling like I have a job? Forget it! All income generated online already feels like a bonus.
If I want to get richer, I'm not going to allocate most of my capital to index funds. Instead, I'm buying single stocks, investing in real estate with leverage, investing in private equity, or building my own business equity.
My main investment interest now is investing in Sunbelt real estate with Fundrise. I believe in the multi-decade trend of the fanning out across America. Work from home is here to stay. And millions of Americans will rationally try to move where they can get the most bang for their buck.
I've personally invested $980,000+ in private real estate investments in the heartland since 2017.
If You Want To Get Really Rich
Here's the lesson. If you want to get really rich, prevent yourself from becoming easily satisfied. Tell yourself what you have is not enough or is not good enough. Constantly compare yourself to others so you can get motivated to try harder!
By constantly seeking more, you will work harder and take more calculated risks. As a result, you should get richer in the process.
Conversely, if you want to stay mass affluent or middle-class, appreciate more of what you have. Compare down, not up. Better yet, try not to compare at all.
The Buddha taught us “desire is the cause of all suffering.” Therefore, try to minimize your desire for more. This includes homes, cars, vacations, promotions, titles, and even children. Trend towards being a nobody.
The Rich Threshold For Happiness
Just know that once you make over $200,000 – $250,000 as an individual or $300,000 – $350,000 as a couple, you won't be happier. Also know that once you get past between $3-$5 million in net worth, you likely won't be happier either.
Therefore, once you get to these financial levels, I highly recommend you pursue something you really enjoy doing regardless of the money. If you can then grow your income and wealth while doing what you love, you will have hit the richest jackpot of all!
And if you really don't care about achieving these financial thresholds, you can always feel rich without having a lot of money. Find richness in time, relationships, and health.
Related posts:
The First Million Might Be The Easiest
How To Feel Rich Even If You Can't Get Rich
Venture Capital Investing
Venture capital investing is an area predominantly dominated by the rich. Investing in private companies is where you might be able to find the next Google, Meta, Figma, Apple and more. Personally, I allocate about 10% of my capital to venture capital.
The most interesting fund I'm allocating new capital toward is the Fundrise venture capital product. Fundrise invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 75% of the venture product is invested in artificial intelligence, which I'm extremely bullish about. I don't want my kids asking me in 20 years why I didn't invest in AI or work in AI today.
The fund's investment minimum is also only $10, as Fundrise has democratized access to venture capital as well. Most venture capital funds have a $200,000+ minimum.
Diversify Your Investments Into Real Estate
In addition to investing as much as possible in your 401(k) for as long as possible, also consider diversifying into real estate. You can buy your primary residence and you can also invest in private real estate funds for further diversification.
Fundrise runs private real estate funds that predominantly invests in the Sunbelt region where valuations are lower and yields are higher. Its focus is on residential and industrial commercial real estate to help investors diversify and earn passive returns.
Fundrise currently manages over $3.2 billion for over 350,000 investors. I've invested $954,000 in private real estate funds since 2016 to diversify my investments and make more money passively. After I had children, I no longer wanted to manage as many rental properties.
Financial Samurai is one of the largest independently-owned personal finance sites today. Fundrise is a sponsor of Financial Samurai and Financial Samurai is a six-figure investor in Fundrise.
Another amazing post Sam.
Reaching levels that have made me feel very comfortable, but truly agree cant make yourself truly rich (>$10M, >$50M) without taking more risks… alternative paths.
Keep posting, thank you
I love this post and is a work of art. So many good points. Indeed, the more the risk, the more the return. I think for this you need three things: (1) Strong connections of similar UHNW people that invest with you (2) ambition (3) high appetite for risk. If you lack one does not work. One pointer is that i am sure all the business interest holders were intrinsically involved in their business at the forefront either as an active owner or an initial investor to someone who was very close, before it went to market. I dont think you can get the same returns from mass marketed online marketed “private funds” which to me is no different (or even worst due to lack of transparency and cards being stacked against you) than index funds returns. No mass marketed passive private fund can mimic returns similar to an owner of a company that is managing the company day in day out. This is also evidenced by the fact that mutual fund stocks underperform while their managers and CEOs make extreme wealth mainly from the commissions. Unfortunately, short of creating or owning a company created by very close associates, whom you can stack the cards with, the best remains index funds which may never bring you the 0.01% wealth. Only approach, which is highly risky, as a passive investor (only if you already have money) is by concentrating single stock exposure significantly preferably with margin similar to the Bill Hwang investment strategy and hoping you could stop when you have built wealth before you crash (not too dissimilar to your Chinese stock). In fact, this is what most investors have done doubling down on an investment with debt etc. A more diluted version would be to borrow and go all in to SP 500 or Nasdaq 100 when you see a significant drop and ride it back up perhaps doubling your money. All very risky but only alternative to get to 0.01% without creating value. Happy to hear your views.
I am still thinking about this article and would like to share an observation. This observation. The chart re: wealth of 0.01% vs remaining highlights a fascinating aspect of wealth accumulation among the top echelons of society. The graph clearly shows that the richest 0.01% are experiencing wealth compounding at an impressive rate of 8-10%, starkly contrasting with the top 1%, who seem to be merely preserving their wealth rather than growing it at a similar pace not even compounding at an index fund pace. This discrepancy may be attributed to several factors:
1. The more conservative investment strategies for this group, such as favoring bonds and cash, which are traditionally safer but offer lower returns, could be limiting the wealth compounding capabilities of the remaining top 1%.
2. Lifestyle choices and large expenditures, such as purchasing high-value assets like forever homes, funding college education for kids and grandkids, or supporting dependents, can significantly disrupt the compounding effect due to marginal size of these vs. total wealth. These assets and expenses often do not compound wealth at the rate financial investments might, due to either slower appreciation or outright depreciation.
3. A substantial portion of the wealth of remaining 1% could be tied up in retirement accounts like 401(k)s, which, while beneficial for long-term savings, are subject to taxation upon withdrawal, potentially affecting the net compounding effect.
4. Easier for this group to spend their wealth if it sits in an index fund account etc. than a business which is highly illiquid making it more difficult to disrupt compounding.
This indicates that the mechanism of wealth growth at this level may be less about aggressive investment strategies and more about navigating expenditures, tax implications, and avoiding highly conservative investment choices. I keep wondering about the concept of an “inflection point” where one’s wealth begins to compound at a significantly higher rate at ‘escape velocity’ to overcome the ‘force of gravity’ where no matter how much you spend will not make an impact to compounding. Identifying this point would require analyzing not just the rate of return on investments but also the impact of lifestyle choices, tax strategies, and the ability to reinvest wealth into higher-yielding opportunities WITHOUT disruption.
Any thoughts what this level could be? Any thoughts why the remaining 1% can not compound even at index funds rates? What may be some other forces at play here?
Hi Sam,
Another great and insightful post. From my network, most of their wealth is also tied up in their businesses and private equity stock and not in the stock market. Their focus is now on wealth preservation rather than wealth accumulation and therefore, shifted from a high risk taking (when running their business) to now being conservative and prefer less volatility. Similar to your allocation above, they are overweight in private equity and real estate and rely on the passive income to support their living expenses.
The other insight that I’ve learned from them is that they will be overweight investments in the areas of their expertise. For example, if they worked in tech or healthcare, they will disproportionately make either public or private investments in tech or healthcare companies for a competitive advantage because they know the space.
While being an entrepreneur is not for everyone, I think if you live in a HCOL city, most younger people should try to supplement their income with side hustles. You have nothing to lose, but your time.
Cheers,
Harvey
“ The other insight that I’ve learned from them is that they will be overweight investments in the areas of their expertise.”
This is true, and makes perfect sense. You press where your expertise, network, are the greatest.
I have read this post a few times since its original release. Fascinating! The graph illustrating investments with escalating wealth was an epiphany the first time I read it.
Personally, our household is mass affluent. With pensions and social security we may foray into the 10 million club in roughly 10-15 years. We are retiring our primary mortgage in 30 months in our mid 50’s. Without touching our investments we will have income of roughly 400,000 yearly. We invest approximately 35% yearly. We primarily invest in index funds; large cap, mid cap, small cap and international. Vanguard and Schwab. Rinse and repeat. Live below your means.
Some of my life long friends have an entirely different investment make up. They have started their own business. 2 will approach 100 million in the next 5 years. 1 will easily eclipse 100 million + once they sell the business they are the sole owner of. Neither of these people have the majority of their investment mix in index funds. It is primarily business and private equity opportunities people have approached them on. I didn’t realize this until the first time Sam posted this article.
Spot on.
Be well and keep on Financial Samurai-ing!
jh
Best quote that resonated in me and will never be forgotten “Whomever say Money isn’t everything, never had any”
We personally have a net worth of over $3M, with $1M in our primary home and $2.5M in equities/cash. I do not feel any wealthier than we were when our net worth was at $600k or $1M, although i can tell you that we worry a lot less about $ now.
Sounds good. Although, you might feel differently at $5 million or $10 million net worth. Because at that level, you can generate enough passive income not to work anymore.
My son has worked for a major tech company for about 7 years. He’s received RSU’s as part of his compensation over that time. I’m sure he’s a multi-millionaire by now. At least, on paper.
Please shoot him an email and ask him what his net worth is after seven years. You may be surprised on the outside or the downside. Thanks.
(Very) long time reader here and this is one of the most interesting and best posts I’ve read. Thank you, Sam.
I’ve often shared the exact same line of thinking: to be super rich, you must never settle or become content. Why be happy with $1 million per year when you can aim for $10 million, or $100 million? Frankly, I’m glad there are folks who feel this way because they often build companies that do amazing things.
Having said that, I’ve learned that my own contentment is intertwined with the freedom of my time. And of all of the extremely wealthy people I’ve met, I wouldn’t consider a single one of them to be free. I have one business acquaintance that will make $20 million dollars this year alone. He’s on a yacht right now and traveling the globe every week. But he told me, and I quote, “I don’t want to be going on a yacht. I don’t want to sit in another jet. I want to slow down. I want to be home. But I can’t.”
And so I’ve learned that time is the ultimate wealth, and yet we give it all away in pursuit of money.
Nice to hear from you. Yes, time is the most valuable asset. But man, making $20 million in one year sure would be nice!
I’m not sure if I can fully trust the ultra rich to say they are not happy or would rather do something else. Bc they could if they really wanted to!
Hi Sam,
Long time follower and first time commenting. What are your thoughts on setting up a trust in South Dakota? Have you look into it from a tax savings? It is known now as the tax haven in the U.S. and billions have been poured into the state including some shady money coming from overseas. Would love to hear your thoughts and if it is something you are considering. No estate or inheritance tax.
How has no one quoted Succession yet in response to the survey? I have to disagree that $3-5m is the NW needed for happiness ….
*****
Greg: I’m good, anyway, cuz, uh, my, so, I was just talkin’ to my mom, and she said, apparently, he’ll leave me five million anyway, so I’m golden, baby.
Connor: You can’t do anything with five, Greg. Five’s a nightmare.
Greg: Is it?
Connor: Oh, yeah. Can’t retire. Not worth it to work. Oh, yes, five will drive you un poco loco, my fine feathered friend.
Tom: The poorest rich person in America. The world’s tallest dwarf.
Connor: The weakest strong man at the circus.
In the 5-10M net worth category. About 15% of assets in MFs. 35% in business. Business ownership is what got me there.
Guess I’m in the Truly Rich category. Got there by working for a company that grew tremendously over a 35 year career. Got promoted to senior management and deferred all my stock awards. Stock grew 20x and is now worth a fortune. Slowly selling off and putting into a diversified portfolio, but my single stock exposure still over 50% of nw. So you can get there by working for a company if you are fortunate to get with a great company with strong growth prospects.
Enjoy your site and your book. Keep up the great work.
Congrats! A stock going up 20X over a 35-year certainly helps! :)
I was at a firm for 11 years where the stock price went up only for a couple of years and then went out for the remaining nine years. The writing was on the wall and ultimately, the company got taken under in 2023 by UBS, 11 years after I left. Sad!
This is exactly the reason I feel this is the worst article I have read on this site. Don’t get me wrong. I am a big fan but this article ignores the basics of investing- diversity. Or probability of success. Just like concentration on one company is risky, the chance of stating a successful business is low.
Thank you Jimmy. The worst article you have ever read on this site is impressive!
Diversifying is one foundation of investing. But we’re talking about the people who get truly rich. There’s less diversification involved.
Are you able to recognize that the commenter whose stock went up 20X in his career has enormous concentration of his net worth in company stock?
Please share with her you are in the truly rich category of $10 million and above, and how you got there.
Thanks!
LOL Sam I hope you see a comment like Jimmy C made and laugh. What an idiot . You are too polite to comment differently but I’ll call it how it is. Great article . Thanks for continuing to write!
SAM
Good Morning
I love your site!
You should be proud of yourself, you found an amazing niche and the name “Financial Samurai!” will never be outdone in financial literature!
I did notice you captured and utilized “nuanced language”, which proves your skill in understanding what resonates with a mass audience.
I am still learning how to interact appropriately with your site.
Replying to older post leaves everyone out of current conversation, for which I believe leads to fewer people being able or willing to engage with each other.
In April 2022 you asked for people to share experiences with becoming late financial bloomers. It is now March 2023 and I have just come across that thread for which I thought to oblige your site with my thoughts and experiences on the subject.
Not sure how to fix this but I decided to post via the site page versus just the reply thread as I think that todays readers will be better able respond, interact and capitalize off the comments.
So for current readers there are many great historical comments that are hard to keep conversations going because of how we physically utilize the site.
I recommend that if you have input for the discussions that you create your own thread versus replying to an older thread but making sure to reference the older thread so current readers can get to the original threads.
So Sam
Having come from a poverty level household it was difficult to attain a position in life where one could achieve the opportunity and mindset to break free and focus on a future with financial security and freedom. (God Bless America and our Forefathers for their willingness to sacrifice their own wealth and Reputational Standings for all of us!)
May a horrible death come upon anyone who schemes against our right to life, liberty and the pursuit of happiness!
“Capitalism”, is “Gods” answer to prosperity for all; anything else is communist evil actions against the poor!”.
Make the Pie Larger!
I started saving late in life due to not being afforded a 401k option until I was 33 and then because of life circumstances I was only initially investing 7-10 percent and because of my own naivety.
I eventually retired from the Marine Corps and began a career with the Federal Government (Foreign Service) “Yes Sam you and I are more connected than you might have caught onto in our previous conversations.”. So now I am fully maxed out on my TSP “indexed funds” and if my math is semi accurate I should eventually hit Approximately 1 million and my wife separately will be about the same.
Technically “mass affluent” but mentally impoverished!
We will have 3 pensions and 2 Social Security incomes as well. (I am already invested for 35 years so every year I continue to work I remove a lower years income for my now higher wage earnings.)
So I believe by a conservative estimate we will have an annual retirement income of 250-300k+.
Not counting 2 Properties that we are intentionally not drawing passive income on.
And
Who knows if I will become a successful writer as yourself but I am dabbling a little bit.
I hope you do not retire again but truthfully and full heartedly I am inspired by your achievements and hope that you are able to enjoy the fruits of your labors as you see fit!
Regards
Chris
Chris!
Very wonderful to hear from you. And thank you for your update and sharing your latest. That is amazing progress and I am very happy for you!
Feel free to comment on any of the articles. I will see them, are used to subscribe to the comments will also see you then.
Fight on!
Sam
As a counterpoint, being in the top 1% of performers at a top tier tech company such as Google can earn you seven figures annually. And investing a good chunk of that into index funds over many years can definitely put you above $5-10M net worth.
Of course, I agree that starting your own business is still a very worthy pursuit.
Sure. However, it would be the 7-figure income every year that made them rich, not the index funds.
… good point. lol.
But your point was a good one too. That you don’t have to be top .001 percent at something to get rich, you can do it being top 1% and take less of an outsized risk. Ride that tanker one percenter! Ride.
Great post. I think an underlying theme and difference between the two classes is the amount generated from assets and how these translate to funding lifestyles.
I.e. HENRY/Mass affluent can generally afford to go on expensive vacations but the consequence of doing so would be spending a good amount of a month’s income, versus the truly rich who basically return from their very expensive vacation richer than they set off just because their income producing assets did not stop generating income.
That being said, and always being context specific here (I live in Southeastern Europe, not exactly first world), it always comes down to living expenses, meaning that if your expensive holiday and expensive lifestyle translates to 10,000 euro/month, having 12,000€ from income producing assets would mean you are truly rich in my view..
As Buffet said (I believe*) the ultimate flex is earning money while sleeping.
Good article! I think a key takeaway is that if you want to become truly wealthy, the stock market by itself probably is not going to do it. You can become “mass affluent” and comfortable, yes, but the wealthiest people made it with their own businesses. You don’t need to be the owner of the next hot tech startup, either. Plenty of people have done very well with “boring” businesses like plumbing, HVAC, car repair, etc.
Index funds is for the mass affluent is a good line. One needs to start a business to become truly rich. Few people do it through index investing, although it can provide a good retirement.
Hi Financial Samurai
What is the easiest way to find out when the S&P 500 dips and to buy.
Thanks
Really great read as always. I recently referenced this post on my site because I think it is quite relevant. In my profession, we make a great income, but gone are the days where a physician can be ‘just’ a physician and ‘have it all.’ What separates mass affluent wealth from the 0.01 percent is the ability to generate multiple streams of revenue. One of those revenue streams should be business ownership. Even as busy doctors, the individuals who reach financial independence (regardless of early retirement) are generally the ones who have either built real estate side hustles, created an electronic product, built a blog, or founded a business (or all of the above). Your graphics tell a very important picture. Thanks for this post.
Hi Sam,
Great Article as always. I have decided to take my real estate investment gains over the last 4-5 years and pay the cap gain taxes. My cash flow on the rentals is negligible & I am sitting on a ton of equity. My question to yo is I want to build a $500k taxable index fund account. Who should I use as a brokerage, I would like to have an IRLOC or a form of margin in case I see an opportunity to buy more real estate. I love real estate but I think having a $500k stock account will make me sleep better at night. I’m only 28 I can rebuild the real estate portfolio in a couple years time.
IBKR. They don’t rent your assets out to cover their costs, and if they do, you have to agree, and they pay you for the privelage.
Typically lowest interest rate for margin loans.
Pretty robust mobile interface.
Low commissions.
I’m going to provide an N=1 experience here, but my parents are well above the mass affluent level due to business ownership, and they steered us away from Entrepreneurship and towards steady professional careers. I have a pretty strong sense that money is an area for “satisficing” instead of optimizing. Though this may be the perspective of someone born between third base and home plate already. From what I can tell, my parents basically went from barely positive net worth for decades, to very comfortable over a 5ish year period, to a “what do I need all this money for?”
FWIW- they have been generous givers all throughout the years, and they do get the opportunity to turn that up since they’ve made it clear that my siblings and I have all gotten a hand up in life, and we don’t need any more of their money.
Personally, I feel pretty happy to not deal with the stress of running a business and having dozens or hundreds of people depending on you for their paycheck. And if you’re successful, all you have is money. Lots of it certainly, but way more than you could ever really spend.
I suspect My siblings and I will mostly end life in the mass affluent class, except for perhaps one sister who has started her own business. Or if we are decamillionaires it will be the result of luck instead of investment savvy.
Thanks for sharing your thoughts. Did you feel you could relax more and not work as hard growing up wealthy? One of the fears is wealth spoiling children and adult children.
I have an upcoming post on this topic.
Interesting question. I don’t think I am spoiled, as I work hard in my professional career and steward money well. I also understand that I have had advantages that others haven’t had. My current wealth isn’t the result of inheritance, but I can’t say it’s of my own merit either.
I’m not trying to build an 8-9 figure business, but I am also working to contribute to society (my community, my own children, etc) in other ways and through other efforts.
If I thought that I could realistically build a high quality business that provided excellent work for many people, I may feel some obligation to start that because of that business. However, I don’t think I have that skill set right now. Maybe in another decade or so it will be a different story.
I look forward to reading your article on the topic!
Thanks for your thoughts Hannah! The post will probably come out next so stay tuned. You can subscribe to my posts by email to not miss a thing.
Reasonable thoughts but that mindset is also the reason for the saying a fortune doesn’t last more than 3 generations (which is probably good overall for society)
Index funds are safer to bet on. So for a busy person who cannot actually afford to invest in financial planning, it makes sense. Nevertheless a very articulate post here Sam. Really loved the content.
Keep up the good work!
Thanks, Sam. Sober, thought provoking, emotional and demoralizing post. I am a HENRY and only in the last 2 years or so really got serious about money and investing. My firm offers a .50 to .75 c (depending on our year) on every dollar up to the max (20,500 this year), so I can’t not do that even though I don’t like 401(k)s. The comment about “middle class people” and “index funds” really hit home. I have a ROTH (that I backdoor), some BTC, and lots of cash in stable coins, but really just feel like I am starting to get ahead. Lots of mistakes in my 20s and 30s. Appreciate your insights and providing realistic goals to hit, like $300k in invested assets.
Thanks for reading Timothy. That’s a good 401(k) match. Gotta take full advantage! Folks like me no longer have that benefit and it really adds up over time.
Although you may have started later, the great thing is that you’re now focused. And hopefully, you enjoyed your 20s and 30s more than the average person too! I was thinking about writing a post on this topic, late starters. Maybe you can share some thoughts on what your financial mindset was in your 20s and 30s and what made you focus more on money in your 40s?
Thanks for any color!
I am definitely in the mass affluent class I am a high income professional who owns a small business and invests the vast majority of my money and income into index funds and I’m perfectly content with this and have no desire to become into the truly rich class. My splurges include fine dining, flying business class and staying at swanky resorts in the Carribean which I can do 3 times a year. Long live the mass affluent class!
Agree!
My 2 cents: I think most people can’t accept the idea of having less wealth that once they had. Once they stop earning as much money as they used to, the idea of spending the wealth terrorizes people. Few can handle the idea of spending 5M$ of 10M$ they have by the time they die. No amount of money can overcome that fear. The way I look at it is: I will build as much as wealth I can, I will retire by mid 50s, live within my means, be with my family, and hope for the best. Life is not risk-free.
Yes, after a lifetime of wealth accumulation, going the other way naturally feels odd/bad/uncomfortable. But you got to do it lest you want to die with too much!
You have to figure out your goals. If you want to be “truly rich”, then you should take more chances and be more entrepreneurial.
Me, I’m much more laid back. My goal is to be happy. That doesn’t take $10+ million. I’m already happy at the “mass affluence” level. Why struggle so much to get rich? There are a lot of risks too. What about those entrepreneurs who failed? You don’t hear much about them.
True. I think for many, getting richer is almost like a game. We all have this desire to strive for more. But it’s be nice if we appreciate a certain limit and enjoy more of what we have.
You’ve always struck me as someone with pretty good balance, which is fantastic!