Many wealthy individuals I know share a common trait:

They didn’t amass their wealth through traditional jobs.

While building substantial wealth through a typical 9-5 job is possible, it’s a long road. The wealthiest individuals I know, some in their 30s, have made their fortunes by making their money work for them. Always remember:

It’s far better to have your money working for you than to sell your time.

Think about it, would you rather work 2000 hours in an office this year or have your money do all the work? Any rational person would choose the latter.

I know this from experience. Over the past 4 years, my portfolio grew from $586,000to$1,300,000. I didn’t earn over $700,000 from my job. Far from it. Most of my gains came from my money working for me. And I love it.

Wealth Accumulation

The wealthy individuals I know made their money either through long-term stock market investments or through real estate (particularly residential properties). Most seem to favor one over the other. A landlord with 10 properties once told me:

The stock market is like gambling. I wouldn’t touch it!

On the other hand, an uncle keen on index funds dislikes real estate:

I absolutely don’t want to deal with rental properties. I want my investments to be completely passive.

I believe wise investors should have both assets in their portfolio. For simplicity, I’ll compare long-term index investing (the same type recommended by Warren Buffett) and residential property rentals.

Passivity: Index Funds Win

No one can deny that index funds are the easiest way to wealth. Index funds never call to complain about a leak, nor do they sneak out of town in the middle of the night. Index funds never flush toys down the toilet. You never need to involve the sheriff with your index funds.

Rental property is a job. You need to find the right properties and good tenants for them. Then, you must perform (or coordinate) regular maintenance and repairs. In the worst cases, you might have to evict tenants who damage your property.

Why I Still Love Real Estate: Real estate is a job. However, even managing 10 properties only takes up a small fraction of a full-time job. If you can’t stand the idea of dealing with tenants, you can always hire a management company.

Control: Real Estate Dominates

Real estate is far ahead. You can decide:

The area of your property. Smart landlords know you don’t need to live near your property if you’ve set up the right systems.
Which properties to rent out.
Whom you rent the house to.

Becoming a successful landlord requires a lot of knowledge. However, if you take the time to learn the nuances of property management, you can do very well.

In the short term, index funds are subject to larger market and world events, over which you have no control. If unethical bankers do something bad (see the Great Recession) or a war breaks out, you might see half of your savings evaporate quickly.

Why I Still Love Index Funds: Over the long haul, the stock market creates immense wealth. The way to deal with short-term fluctuations is to ignore them. A significant market drop is just an opportunity to buy in at a lower cost. Ignore the news, hold steady. Losses are on paper; you only truly lose when you sell below your buying price.

Real estate is harder to quantify because there are many more variables, including your skills as a landlord. However, real estate heroes like Brandon Turner and Chad Carson, both in their 30s, are financially independent. Clearly, real estate can be a fast track to wealth with hard work.

Stock Market vs. Real Estate

Which one is right for you? Before I find the answer, let’s lay out some very basic rules:

Stock Market Investment:

Index funds are foundational: Buy low-cost index funds. Don’t try to pick stocks.
Stay the course: Warren Buffett famously said, “Our favorite holding period is forever.” Don’t think in days, months, or even years. Think in decades.

Real Estate Investment:

Learn before diving in: Educate yourself! Start with the 1% rule and cap rates.
Screen your tenants like the FBI. And some more: A bit of work upfront can save you a lot of trouble. Always opt for good credit over good excuses.
You don’t have to own property to be a real estate investor: So far, I’ve focused on owning long-term rental properties, but if you want a passive investment in real estate, there are good options. Crowdfunding platforms like Fundrise, Patch of Land, Realty Mogul, RealtyShares, and PeerStreet, allow you to comfortably invest in real estate from your computer. Each company takes a slice of the profits. In return, you have a team of full-time experts working for you. Check out this comprehensive Fundrise review for more information.
Real Estate vs. Stocks: Which One Suits You?

I’ve spent nearly half my life investing in the stock market and also own rental properties. I appreciate the diversification that comes with having both assets. If you have stable rental income, a 30% drop in the stock market is much easier to stomach.

Deciding where to put your money largely depends on your personality. Real estate requires more effort but can be a quicker path to wealth. Index funds require the least effort, and you don’t need a large down payment to start investing. However, I encourage you to explore both.

Never forget, the ultimate goal is financial independence. The path to financial freedom is entirely up to you. While financial independence is a wonderful feeling, don’t forget to enjoy the journey. Stop occasionally to smell the roses (hopefully, there are no illegal cats in your rental properties). Work hard and save aggressively, knowing that a life free from monetary worries is a beautiful life.