I often get asked, “What’s the best stock to pick?” When I tell people they need to be selective, they counter with advice they’ve heard: “Just buy all of them through an index fund like VTI.”
This passive approach to investing isn’t entirely wrong, but it’s far from optimal if you’re serious about building wealth. Let me be clear: index fund investing is for people who don’t want to think. It’s essentially saying, “I don’t understand how money works, so I’ll just buy a little bit of everything and hope for the best.”
That’s not a strategy. That’s surrender.
The Problem With “Buy Everything” Investing
Warren Buffett put it perfectly when he said, “Diversification is protection against ignorance.” If you actually know what you’re doing, you don’t need to own 3,000 companies. You need to focus.
When you invest in an index fund like VTI, you give up:
- Control over what you own
- Influence over your investments
- Knowledge of what you’re actually buying
This approach leaves you completely vulnerable when markets inevitably drop. You have nothing to do but cross your fingers and wait, hoping things eventually recover.
Focus Creates Freedom, Not Diversification
The wealthy don’t build fortunes through extreme diversification. They build wealth through focused investments in areas where they have knowledge, expertise, and control.
I believe the best investments are often:
- In yourself – your education, skills, and personal growth
- In your business – where you have direct control over outcomes
- In your network – relationships that create opportunities
- In areas where you have specialized knowledge
The money sitting in a broadly diversified index fund could instead be funding your next breakthrough, helping you develop new skills, or expanding your business – investments that can deliver returns far beyond market averages.
Diversification is protection against ignorance. If you actually know what you’re doing, you don’t need to own 3,000 companies.
The Comfort Trap of Average Returns
Index funds like VTI are marketed as safe, sensible options. And they are – if your goal is average returns. But average returns don’t build extraordinary wealth or freedom.
When you accept average, you’re accepting the limitations that come with it. You’re placing your financial future in the hands of thousands of companies you know nothing about, run by people you’ve never met, selling products you might not even use.
This isn’t to say index funds have no place. They can be useful for portions of your portfolio. But making them your primary wealth-building strategy is limiting your potential.
Invest With Knowledge, Not Hope
The most successful investors I know don’t spread their money across everything – they concentrate on what they understand deeply. They develop expertise, build advantages, and make decisions based on knowledge rather than hope.
This focused approach requires more effort. You need to learn, analyze, and make thoughtful decisions. But the potential rewards are far greater than what you’ll get from passive index investing.
If you want freedom, not just returns, you need to stop settling for average. You need to invest with purpose, knowledge, and focus. The path to wealth isn’t through owning tiny pieces of everything – it’s through meaningful stakes in what you truly understand.
