Become a Millionaire on Wall Street

We continue to receive questions/emails on “how to become rich on Wall Street”. To cut to the chase, there are only three ways you’ll ever be worth over a million dollars at a young age (under 40): 1) you spend a long time as a career associate (awful idea), 2) you get promoted rapidly – great idea, 3) you do either 1 or 2 and start a company on the side – best idea.

That is it.

Since our blog focuses on Wall Street we’re going to go ahead and outline the various ways you can become a multi-millionaire on the Street and none of the answers include staring at an excel spreadsheet all day. We are also going to include the estimated attrition rate as we go along and possible hiccups that will more than likely occur on your journey to becoming a millionaire.

1) Making a Million Dollars the Hard Way: A million dollars is certainly a reasonable goal for anyone who breaks into Wall Street and $500K is a reasonable goal for anyone with work ethic (Wall Street or not). Assuming you never make it to a revenue generating role, you can still break 7 digits before you turn 35. This is not a good path to take as you’re destroying your career by becoming a “Career Associate”, ie: Capped out at $200-250K per year as you’re unable to convince the higher ups that you can move from a processing role to a generation role.

If we look at the life of a career associate, or someone who is unable to ever make the leap to a VP role, you will likely hit your 7 digits by ~33 years of age. This is a grueling path as you’re grinding out 65 hours a week for 9 years. This is certainly not recommended and if you take a look at the assumptions and pitfalls you’ll see that making the jump to revenue generation is practically mandatory.

Level 1Assumptions: You are saving 50% of your net pay. You do not get laid off. You do not need an MBA. You don’t quit (more than 80% of people entering into the Street will certainly not survive more than 5 years). You can also do this as a Non-Target.

2) Making a Million Dollars the Normal Way: More likely than not you will see most successful Wall Street types in this camp. They worked either as an analyst or entered into the Street with an MBA and got the go ahead promotion after 4-5 years of associate work. You can certainly move faster than this but a layoff, bad group, bad year or bad anything usually throws a wrench into your million dollar equation. Notably, once you hit revenue generation you can see your incremental net worth begins to skyrocket.

When you start your career, if you take a look around the office you’ll quickly spot these Directors in the office. They work reasonably hard, but are not entirely type A. They have careers that are essentially on cruise control.

level 2Assumptions: You continue to save roughly half of your net pay, you make the cut to revenue generation and you’re starting to build out your brand. Once you have enough contacts and leads for new business you settle into a Director/Managing Director role to collect $500K+ and over a million+ in the future. Generally speaking the larger net worth years are in your 40’s.

3) Making a Million Dollars the Fast Way: In an ideal world, everyone will take this track. You would have the following tailwinds: 1) Extremely high IQ and high work ethic, 2) Extremely good luck with the right firms/companies/groups at the right time and 3) a bull market. In this scenario, you can quickly scale the ranks into a revenue generating role or by jumping to the buy-side where you can make 2x as much income as the sell-side. For illustrative purposes we will assume the compensation packages remain in line with sell-side numbers in a stable market environment.

Notably, you’ll see that by the time year 12 comes around you’re closing in on $2M in net worth. You’ll be doing a lot of damage on investment returns alone and won’t need any career management help at this point.

Level 3

Assumptions: You are a top tier candidate at a group that promotes within and you luckily find yourself in an up-tape. We would highlight that the two biggest drivers here are being 1) top tier in terms of performance and 2) your group having a positive history of promoting within. This is also why we do not spend much time talking about prestige as your ability to scale responsibilities will always outweigh prestige. “Fuck prestige. Get Money”

Attrition Rates: If it looks simple “just make VP” you’re going to be in a world of hurt. Attrition rates from the analyst ranks is likely 80-90%. Attrition rates at the associate ranks is likely 80% or so. It is slightly lower as an associate. Why? If you were smart enough to understand the dynamics of your office you’re likely smart enough to have the *right* people on your side.

Concluding Remarks: We have covered myths about Wall Street in the past and you can quickly see, through basic math, that even on Wall Street there is no easy way to secure 7 digits or more. Your goal is to increase responsibilities at a rapid rate. The faster you reach a revenue generating role, the faster you are unplugged from the system as your list of contacts represents your value. The bank is a platform for you, you no longer work for the bank. <– this is where you can tell if someone works in the industry or not.

Finally, the elephant in the room is that we have assumed you avoided the $100-200K net cost of obtaining an MBA. For graphical purposes we have outlined the three paths below with the red line representing the cost of an MBA obtained at year three for $150K and growing at 5% in-line with your investment returns.

Chart

Comments

  1. Bulge Bracket says

    How does this differ in different jobs? “Sell-side” seems to lump investment banking, equity research and S&T into one category?

    • Wall Street Playboys says

      We have assumed similar net savings/pay as each industry has upsides and downsides. An an example in Banking your income is the highest (sell-side) however hours are significantly higher and the turn rate is higher. Research and Sales and trading is a bit of the reverse, hours are significantly lower and turn rate is lower (pay is also about 20% lower – think $200K instead of $250K at the associate level).

      Once you get to the Managing director level, squabbling over $600K and $800K depending on which part of the sell side you are on is a bit of a waste of time.

  2. Matt says

    Seems like the savings rate could be higher at the revenue generating level right? Mr. Money mustache readers would say spending 65k+ a year is insane!

  3. banker4life says

    basically shows 1) there’s no quick or easy way to the top as anyone in ibd knows each year is a survival by itself… 2) differences really start becoming meaningful from year 12 onwards… 3) if you’re stuck in consulting or f500 corporate, your networth will be entry level assumptions extended from year 4 to 12. great writeup.

  4. sightunseen413 says

    Hey Buddy. I love your blog, your insights & views, but I still don’t think you’ve “made it” quite yet, if freedom is your least common denominator. Have you met any affiliate marketers in the city? How about consultants? 27 yr old consultants? I start every day at starbucks, any starbucks, across the northeast, and truly command my own life, working from my laptop. No. One. Else. Does.

    • mike says

      $1m isn’t “making it” you’d probably need 10-20x that number to just completely stop and control your life.

    • Wall Street Playboys says

      We know quite a few (hint hint hint). It is not a bad job.

      In our view, “made it” means no longer have to work for anyone, period. Which means near $1M net by 30 at the minimum. If you’re in the top 3% in the USA you’re doing just fine.

      Some Affiliates do get there if you’re one of them congrats!!! Keep making that $

  5. mike says

    For most of you this is just hugely unlikely because the assumption is you will stay in a job. The bulk of people entering Wall Street/The City are almost always susceptible to firings/lay offs and just plain bad luck and I’m talking VERY smart people.

    Don’t fool yourself most people do not last more than 2-5 years in the industry. It is around this point people look to either a) experience a painful lay off b) change jobs/industries c) do something else. This is especially a common pattern at the analyst associate level and I’ve personally seen 100+ cases of this in the last 8 years of my working life.

Leave a Reply

Your email address will not be published.