Want to be rich enough for the Forbes 400? The stock market won't get you there.

By Mark Hulbert

Stock investing is how you keep wealth - not how you make it

Contrary to the toxic narrative that has captured much of Gen Z, along with a considerable number of prior generations and the Financial Independence Retire Early (FIRE) movement, the stock market is not the way to build great wealth. Instead, the market is where you should go once you've made your fortune elsewhere to preserve your purchasing power.

That's the conclusion I draw from the just-released 2024 edition of the Forbes 400 list of richest Americans. Consider how hard it is to make it onto the list through investing alone. Let's assume you start investing at 25 with the goal of making it onto the Forbes list by age 65. Assuming you can match the S&P 500's SPX long-term historical return, you would have to start with $212 million.

You might think that members of the Forbes 400 are a special breed, able to regularly beat the S&P 500 through their investing skill. But you'd be wrong, as you can see from the chart above. The combined wealth of the Forbes 400 outperformed the S&P 500 only once in the past eight years. Over those eight years, they collectively have lagged the S&P 500 by 2.3 annualized percentage points.

Even this calculation overstates the performance of the Forbes 400, since it doesn't reflect the returns of those on the 2023 list who didn't perform well enough to make it onto this year's list. There are 30 individuals in this category.

Warren Buffett is about the only person who routinely makes it onto the Forbes 400 list because of investing abilities.

About the only person who routinely makes it onto the Forbes 400 list because of their investing abilities is Warren Buffett, head of Berkshire Hathaway (BRK.A) (BRK.B)

Another way of making this point is to focus on the "Self Made" scores that Forbes assigns to each member of the 400 list, reflecting how self-made his or her fortune is. A score of 10 means that the person is totally self-made, born into poverty and overcoming significant obstacles along the way, whereas a score of one means that the person inherited his or her wealth and has not worked to increase it. Two-thirds of the Forbes list fall into one of the "self-made" categories, with the most common score being eight. (See the above chart.)

The investment moral is clear: If you want to amass wealth of Forbes-400 magnitude, go create something the world needs. An inexpensive broad stock market index fund will be waiting for you when you're ready.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Will the U.S. stock market crash this month? Why an October surprise can't be ruled out.

Also read: Small-cap stocks rally after Fed rate cuts start. Here's how to find winners.

-Mark Hulbert

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10-08-24 0735ET

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