Index funds have become the sensible shoes of investing: comfortable, dependable, and unlikely to embarrass you at a family reunion. They are low-cost, broadly diversified, easy to understand, and wonderfully boring. For most people, boring is not a flaw. Boring is how retirement accounts avoid becoming cautionary tales.
But the idea behind The Richest People Are Not Index Fund Fanatics – Why Are You?, popularized by Financial Samurai, raises a useful question: if broad index funds are so powerful, why do many ultrawealthy people own businesses, real estate, private companies, concentrated stock positions, and other assets that look nothing like a total-market ETF?
The answer is not that index funds are bad. It is that the tools used to build extraordinary wealth are often different from the tools used to protect and compound existing wealth. The wealthiest households frequently became wealthy through ownership: owning a company, a valuable stake in a growing business, intellectual property, commercial property, or a highly appreciated block of stock. That is a very different game from buying a diversified fund every payday.
So, should you abandon index investing and start hunting for the next unicorn from your kitchen table? Absolutely not. The point is to understand the difference between being an index fund investor and becoming an index fund fanatic who assumes that one strategy must do every financial job for the rest of your life.
The Big Difference: Building Wealth vs. Preserving Wealth
Many of the richest people did not become rich by selecting a low-fee S&P 500 fund and waiting quietly for 40 years. They built or controlled assets with outsized upside. A founder might own 40% of a company before it becomes publicly traded. A real estate developer might own a portfolio of apartment buildings. An executive may accumulate a meaningful equity stake in a company that grows far faster than the overall market.
That does not mean these people are smarter than everyone else at picking stocks. Often, they had something most public-market investors do not have: control, specialized knowledge, access to opportunities, operating skill, or the willingness to spend a decade solving difficult problems while everyone else was watching streaming television.
Federal Reserve research shows that wealthier U.S. households tend to hold more of their assets in stocks and private business equity, while middle-wealth households hold a larger share in housing. In the 2022 Survey of Consumer Finances, the top 10% of households had at least $1.56 million in net worth, while the top 1% had at least $11.64 million. Their portfolios are not simply larger versions of the average household portfolio; they are structured differently.
That is the key insight. Wealthy people often have concentrated exposure because concentration helped create their wealth. A business owner is concentrated in the company because the company is their engine. A founder is concentrated in equity because that equity represents years of labor, risk, relationships, and problem-solving. A landlord may be concentrated in property because property management is not merely an investment to them; it is an operating business.
Index funds, by contrast, are usually a wealth-compounding tool. They give investors exposure to thousands of companies without requiring them to become an expert in semiconductor supply chains, airline balance sheets, or whether a certain CEO’s “visionary” hoodie should be valued at 40 times earnings.
Why the Wealthy Often Look Less Like Index Fund Devotees
They Own Productive Assets They Can Influence
The richest people are often owners before they are investors. They own an enterprise, a brand, a professional practice, a real estate portfolio, or a private investment partnership. Their returns may come from improving operations, expanding margins, hiring exceptional people, negotiating better contracts, or scaling a product that customers love.
This is a critical distinction. Buying shares in a broad index fund means you own tiny pieces of many businesses. Building a company means you may directly influence whether the business succeeds. The potential reward can be massive, but the work, risk, and stress are also massive. Nobody posts glamorous photos of payroll day, insurance renewals, or a client who pays an invoice 73 days late.
They Can Afford Illiquidity and Complexity
Private businesses, venture investments, commercial real estate, private credit, and private equity can tie up money for years. They may also involve legal documents thick enough to qualify as furniture. Wealthy investors may have teams of attorneys, accountants, tax specialists, and investment professionals to evaluate these opportunities.
Most individual investors do not need to copy that complexity. In fact, complexity can become expensive theater. The U.S. Small Business Administration notes that entrepreneurs often rely on personal savings, family resources, or retirement assets when self-funding a business. That can create opportunity, but it also means business ownership can put a household’s financial security at risk.
They Have More Ways to Survive a Bad Bet
A billionaire can make a poor private investment and still have several homes, a diversified public portfolio, income-producing assets, and enough cash to buy a suspiciously large boat. A typical investor who makes one bad concentrated bet may have to delay retirement, sell assets at the wrong time, or explain to a spouse why “this stock tip from a podcast” seemed like a retirement strategy.
That is why copying a rich person’s visible portfolio can be dangerous. You may see the winning company, the successful private fund, or the spectacular property deal. You do not see the failed startup investments, the expensive legal disputes, the illiquid positions, or the team of professionals managing the chaos behind the scenes.
Index Funds Are Still One of the Best Deals in Investing
Before anyone throws their total-market ETF into the nearest decorative fountain, let’s be clear: index funds remain an exceptionally strong default strategy. They offer diversification, transparency, low costs, tax efficiency in many cases, and a simple way to participate in long-term market growth.
Vanguard emphasizes that index funds typically provide lower expenses than actively managed alternatives. Lower fees matter because every dollar spent on investment expenses is a dollar that cannot compound for you. A small annual fee difference may appear harmless, much like one extra cookie, but decades of compounding can turn tiny percentages into serious money.
There is also a performance reality that fans of stock-picking often prefer to whisper about. S&P Dow Jones Indices reported that 79% of actively managed large-cap U.S. equity funds underperformed the S&P 500 in 2025. Morningstar’s U.S. Active/Passive Barometer similarly found that only 38% of active strategies both survived and outperformed their asset-weighted passive counterparts during 2025.
That does not prove active investing is impossible. It proves that successful active investing is difficult, especially after costs, taxes, timing mistakes, and emotional decisions. The market is full of talented professionals with teams, data terminals, and very fancy coffee machines. Beating them consistently is not impossible, but it is not a casual weekend hobby either.
FINRA also warns about concentration risk: the danger of holding too much of your wealth in one investment, sector, or asset class. Diversification cannot eliminate market risk, but it can reduce the damage caused by one company, one industry, or one very confident nephew with a crypto thesis.
The Trap: Confusing Wealth Creation With a Universal Investment Rule
The richest people are not index fund fanatics because their wealth often came from concentrated ownership. But this observation can lead to a very bad conclusion: “Therefore, I should concentrate my savings in a few risky investments.” That is like noticing that Olympic sprinters do not wear hiking boots and deciding you should run barefoot on a highway.
Concentrated investing can create extraordinary wealth. It can also destroy capital with remarkable speed. The same founder equity that becomes worth $100 million can become worthless if the company fails. The same rental-property portfolio that performs beautifully in one cycle can struggle with vacancies, refinancing costs, maintenance shocks, or local market weakness in another.
Survivorship bias makes concentrated bets look more glamorous than they are. We hear about founders who built billion-dollar companies, early investors who found the next giant, and executives who held stock through a spectacular run. We hear less about the many businesses that closed, the private shares that never found a buyer, and the investors who discovered that “illiquid” is a polite word for “you cannot sell this when you desperately want to.”
Even Berkshire Hathaway, an organization famous for concentrated and conviction-driven capital allocation, has historically operated with a level of research, liquidity, operating-company cash flow, and institutional expertise that ordinary investors do not possess. Treating a billionaire’s portfolio as a personal blueprint is like treating a Formula 1 pit crew as guidance for changing your own oil.
A Smarter Approach: Build a Core, Then Earn the Right to Take Bets
The strongest lesson is not “dump index funds.” It is “give every dollar a job.” Your portfolio can include a stable core and a smaller opportunity bucket, provided you understand the purpose and risk of each.
1. Keep a Diversified Core
For many investors, broad stock and bond index funds can form the foundation of long-term investing. This core should be built around your time horizon, cash-flow needs, emergency reserves, tax situation, and ability to tolerate market declines without panic-selling at the exact moment markets are on sale.
A diversified core is especially valuable when your career already creates concentration risk. If you work for a technology company, receive stock compensation, and live in a city dependent on technology employers, owning even more technology through speculative side bets may not make your financial life as diversified as it appears.
2. Create an Opportunity Allocation
Once your emergency fund, retirement saving, insurance coverage, and core portfolio are in decent shape, you may choose to allocate a limited amount to higher-conviction opportunities. This might include starting a business, buying a rental property, investing in your professional skills, acquiring a small online business, or selecting a few individual stocks you have researched deeply.
The important phrase is limited amount. An opportunity allocation should be money you can afford to lock up, lose, or watch fluctuate without endangering your housing, health care, retirement, or peace of mind. It should not be the money reserved for next year’s tuition payment or your down payment.
3. Invest in Your Earning Power
For many people, the highest-return investment is not a stock ticker. It is improving their earning ability. A new certification, technical skill, sales capability, professional license, or business network may increase income for years. That additional income can then be invested in a diversified portfolio or used to fund a business opportunity.
This is one reason the wealthy can appear less dependent on index funds. Their human capital, businesses, and networks may produce cash flow that keeps refilling the investment bucket. They are not necessarily rejecting public markets; they simply have more than one wealth engine running.
4. Understand Tax and Liquidity Before Chasing Returns
Taxes, debt, and liquidity can change the true return of an investment. The IRS distinguishes between ordinary income and capital gains, and the tax treatment of an asset can affect when and how investors choose to sell. Real estate, private businesses, and concentrated stock positions can create complicated tax decisions that should be reviewed with qualified professionals.
Do not judge an investment only by its projected return. Ask how quickly you can access the money, what happens in a recession, how much leverage is involved, what fees apply, who controls the outcome, and whether you understand the downside without needing a 47-slide presentation.
Experience-Informed Lessons: What This Looks Like in Real Life
The following examples are illustrative composite scenarios, not personal investment advice or promises of results.
Consider a software engineer who invests consistently in low-cost index funds through a retirement plan. Over time, she develops a valuable specialty in cybersecurity, begins consulting on the side, and eventually creates a small subscription-based training business. Her index funds remain her financial foundation, but her business becomes her wealth-creation engine. The business is not diversified, and it requires work, customer support, marketing, and plenty of awkward conversations about pricing. Still, it gives her a chance to create upside beyond her salary.
Then consider a physician who earns a high income and becomes enthusiastic about real estate. He purchases multiple rental properties quickly because everyone at a conference seems to own an apartment building and have perfect teeth. At first, the properties look brilliant on a spreadsheet. Then insurance costs rise, repairs arrive in clusters, a major tenant leaves, and refinancing is more expensive than expected. His diversified index funds continue doing their quiet job while his real estate portfolio teaches him the ancient financial lesson that roofs are not impressed by your optimism.
A third investor receives substantial stock compensation from her employer. The company is growing rapidly, and the shares have become a major part of her net worth. She feels emotionally connected to the business because she helped build it. That feeling is understandable, but it also creates concentration risk. Her salary, career, benefits, and portfolio are all tied to the same company. Selling some shares and diversifying can feel disloyal, yet risk management is not betrayal. It is simply recognizing that one company should not control every part of your financial future.
Another common experience involves the ambitious investor who wants to imitate private equity or venture capital. He sees exciting startup opportunities online and imagines finding the next massive winner. What he often underestimates is the importance of deal access, due diligence, diversification across many investments, and the possibility that the money may be unavailable for years. Wealthy families that invest privately often spread capital across multiple deals and rely on specialists. A single investor making one or two private bets is not building a private-equity portfolio; he is buying a lottery ticket with better vocabulary.
The practical lesson is not to avoid ambition. It is to sequence ambition. First, create financial resilience: emergency savings, manageable debt, insurance, retirement contributions, and a diversified investment base. Then use time, expertise, and a carefully sized pool of capital to pursue opportunities where you genuinely have an edge. Your edge might be professional knowledge, a business you understand, a local real estate niche, or the ability to create something customers value.
Index funds can give you the stability to take intelligent risks elsewhere. They can keep your financial life moving forward while you experiment with a side business, pursue a promotion, or learn a new skill. In that sense, index investing is not the enemy of wealth creation. It is often the safety net that makes thoughtful wealth creation possible.
Conclusion: Be a Thoughtful Investor, Not a Financial Ideologue
The richest people are often not index fund fanatics because their fortunes were built through concentrated ownership, entrepreneurship, private business equity, real estate, and specialized opportunities. But their portfolios should not be copied without considering the access, expertise, cash flow, risk capacity, and professional support behind them.
For most people, low-cost index funds remain one of the most effective ways to build long-term wealth. The better question is not whether index funds are enough for every purpose. The better question is whether you have built a solid financial core before taking bigger risks elsewhere.
Own broad market exposure. Keep costs low. Avoid confusing luck with skill. Build your earning power. Pursue concentrated opportunities only when you understand the risks and can survive the downside. That approach may not make you look exciting at a cocktail party, but neither does explaining why you had to sell your car after investing your emergency fund in a “guaranteed” moonshot.
