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.
Assumptions: 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.
Assumptions: 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.
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. “F*** 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.