Path to 8 Figure Wealth
Wanted to get opinion on the most common paths people obtain high 7 / low 8 figure wealth from a career in Finance.
Obviously this is highly unlikely for even the hardest working individuals. But for people who obtain it, what paths are most tread?
My understanding would be climbing IB ranks, jumping to PE and somehow getting involved in seed round Investment with personal funds at one point could be one way.
Although, I do believe it would be hard to generate such wealth without creating some sort of value yourself through a Startup etc.
Interested to hear your thoughts.
A career in IB or PE will get you there eventually. The difficult part is grinding through that.
This. You should reach 8 if you work into your 50’s or 60’s.
yep reach it right before you die and then give it all to government so they can spend it to help people in the hood (who hate your guts) smoke weed and do nothing all day - great life goal
Any shortcuts ?
The best path to 8-figure wealth is to scam, scheme, and lie your way to the top. Forget about ethics, morality, or the law. It's all about making a quick buck, regardless of who you hurt or exploit along the way. Manipulate the markets, cheat on taxes, bribe officials, and launder money like it's nobody's business. The world is your oyster, and you can take whatever you want as long as you're smart enough not to get caught. Don't waste your time on silly things like hard work, integrity, or social responsibility. Just focus on being a greedy, selfish, and ruthless bastard, and the money will flow like water. That's the real path to 8-figure wealth, and anyone who tells you otherwise is a sucker.
A successful finance career can get you a seven figure net worth and more. Owning something valuable gets you to eight or nine figures. Look at all the founders of funds / banks, equity partners, and real estate owners. Sure they saved up during their career, but the income from those assets dominates the equation. Making tens of thousands a month in rent or having huge exposure to the upside of a fund will make the difference here.
factual
You can get an 8 figure net worth by 40 in IB fairly easily. Conservative bonuses + normal promote schedule + 7% returns gets you there. Invest 100% of your bonus until you have kids and other large expenses.
absolute cap
The math gets you there pretty easily, but most people don’t get there because of bad investments or large expenses
Eh, I think 5m pretty easily. I think 10m possible, but definitely not easily
Requires some pretty high saving rates.
Not sure why so much MS because this is definitely possible outside of NYC/SF/LA
It's quite simple to generate that level of wealth. Earn a very high income (which you are certain to do if you are in IB / PE), save a very high portion of your income and invest your savings at a high return. If you are really spending time analyzing stocks, achieving a return of 15% over time should definitely be possible. However, I think most people will not reach 8 figures because it's quite difficult to motivate a high savings quota after a certain point. Let's say you're making $1m a year and have $3m in savings. At some point you will ask yourself whether it is worth working that hard if you don't get to spend any of your money. As a result, most people will buy expensive houses, go on expensive vacations, get expensive cars, spend a lot of money on expensive restaurants etc.
15% returns in the long-run is absolutely not something that "should definitely be possible".
It will obviously become more difficult as your capital becomes very large. However, I definitely think that it is possible. There are mutual funds that have generated significantly higher returns over long periods of time. Mutual funds are at a huge disadvantage as they are required to be pretty much fully invested at all times, are often limited to certain sectors, indexes, sizes of companies, sizes of positions etc. I have been investing for the past 8 years with a CAGR of 27%.
My passive private investments yield ~15% - 20% IRR. But my deal flow is solid.
The covid market has shifted how people view the market lol. Definitely 15% is insane.
I would be a billionaire if i can just achieve a 15% return every year
Dude, if you're generating 15% returns 'by analyzing stocks', quit your job and start your own fund. Hell, I will seed you as long as you guarantee me 10% and I'll give you the remaining 5% for your competence.
I remember reading somewhere that REITs were generating 5-7%, where ETFs were 2-4%?
I’m pretty sure this was covered already in another post but the golden path to get 8 figure - 9 figure wealth in finance is below:
-Grind your ass off in high school in order to get to a top school
-Grind your ass off even more at H/W to get a top job at a top EB or BB
-Grind your ass of even more to get stellar reviews for PE recruiting. Recruit for the MFs that have expedited promotion tracks (APO/KKR)
-Grind even harder here in an attempt to make partner by 33-34. You should be worth 20-30mm by the time you make partner. You should have over 80mm in carrier interest by 40 (or even more) if you make your mark as a partner
-Other scenario is to recruit from this MFPE shop to a place with even more absurd earnings potential (Pershing, Tiger(if they exist), Lone Pine, Viking) but a case can be made that it makes sense to simply stay at the APO/KKR type shop
-Launch your own fund and clock in a 10 figure net worth before you hang up the cleats.
this is the dream for many but only the reality for a select few
People on here are so delusional that they think they can become a billionaire
I mean it’s the delusional ones who become one my man. Just because you think like a layman doesn’t mean that you have to push your insecurities/lack of ambition/mediocre way of thinking onto others.
let kids dream. they will all be billionaires and astronauts one day.
I have buddies at APO who are on this expedited track and they are nowhere near 20m net worth at 31-32 and not going to get there by 33 as you suggest. Their paper wealth isn't even there. They have maybe slightly more than half the numbers you're suggesting in unvested carry in funds that will also need to appreciate a lot to hit those numbers. It's not that easy to get a liquidity event that nets you post tax 20m by 33 that's a highly highly differentiated outcome
Dude if you do digging, you’ll see some of the principals buying 5mm apartments in early thirties. That typically means you have a 15m-20m net worth.
i can tell an intern wrote this, this is wrong on so many levels lmao. 20-30m by 33?
If this gets him motivated to study technicals, why not just let him be.
Seems like a pain in the ass and not worth it lol
Also, 90% of funds fail by the end of their first close. I know a GE fund manager who started his shop and it took 4 years to raise 1b, says that if he knew how hard and painful the process would be he would never have started it. For some people this path is complete ass and seriously not worth the extra digits. He told me that if you're doing it for the money you will burn out and only the most weirdly obsessed get to the top, and they do it for reasons outside of $.
This is so 2019/2020. Friends at those legacy elite tiger cubs hate it today. Really sad but one of them got extreme depression after bonus season and quit finance
In: podshop LO
Out: Tiger cub
No one:
Absolutely no one:
Interns: how do i become a billionaire
If you stick it out in IB or PE and save most of your income, you’ll get there at a decent age.
You can accelerate that probability of getting there sooner by taking greater risk (ex. buying real estate, investing in start-up opportunities / young growth companies where you know the founder, launching your own business venture on the side etc.)
The difference between having $10M and having $1M is huge, but the difference between having $10M and $20M is ten million dollars. It’s not material at that point.
Better question would be “what can I do that is worth 8 figures” and you’ll find some answers
10 - 1 = 9
20 - 10 = 10
10 > 9
whats your logic there? 🤓
The marginal diminishing utility of money. If I asked you would you rather have an extra $100 when you have $0 vs when you have $100 you'd take the former over the latter. The justification for this has to do with how you consider/conceptualize the relationship between the utility function and your preference relation.
We can actually apply Weber's law from psychophysics here, if I have some state of affairs S (in the original formulation S refers to a measure of stimulus, here a measure of utility), then there exists some real number r s.t.
delta(S)/S = r
Ie, the change in my utility in a given state is representable in R. Then I may simply set a just noticeable difference parameter using a distance formula, ie,
xPy iff d(x,y) > z for some z and with d(x,y) = |x-y|
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Mid 40s is achievable if you inherit
Seven figures is easily doable, 8 figures you have to be a high performer that stuck with finance (and most likely moved to buy side). Helps if you end up dating/marrying someone with similar earnings.
Have seen a fair bit of people hit 8 figures before mid 40s
Yep, marry someone with same earnings / earnings potential makes it much easier
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My pick would be to become a trader at a quant-focused hedge fund (DE Shaw, Two Sigma, et al) or a prop trading firm (e.g. Jane Street). If you land one of those positions and are able to hack it, you will hit 8 figures in your 30s.
Anecdotally, all my contemporaries from college who landed these positions are easily worth 8 figures (ignore the title in my profile - I'm old)
IF you are able to hack it. Knew at least a few people that went into quant trading out of college - and while they smoked us in terms of total comp out of the gates, lots of them capped out. Now they're on gardening leave and looking to move into tech.
Alternatively you could take your first $2 million, borrow another $2 million and buy a Chevy Dealership in bumblefuck Midwest. You’ll get way richer way faster.
Very few people achieve that type of net worth at a young age (say less than 50-60) by working for somebody. I mean a good example would be someone who started working for a fast growing company on the ground floor and was award stock options ever year (such as Amazon). Yes, I know there are dozens or hundreds of people on this website that can point to someone they know to refute my point.
But for the most part, worker bees do not create much wealth for themselves. Only people who own assets do. Businesses, buildings, land, trailer parks, laundromats, car dealerships, etc will make their owners much more money than that quick stock tip Jerry gave you or that $250k salary that the bank gives you.
I got lucky in the stock market and, assuming 7% annual returns (a bit aggressive given the current market but I’d like to hope I can average that over the next 35 years), I’ll have 8 figures by the time I’m 63 with no additional investment into the account.
Easiest way to make money is to already have it. The compound interest is insane towards the end of that time period.
Granted I’d like to spend that money before I’m that old, but I’m hoping I can continue working a high paying job that will allow me to spend money and still contribute to this account, as well as my other savings vehicles
people fantasize about 8 figures and making billion dollar deals when they're in school. then they start working 100h weeks and cry and leave in the first year and settle for a 80k job.
Well damn man, what other reaction should a guy have to a 100hr work week??
If you invest 50k every year from the age of 20 (starting with nothing) you should have just under 10m by 60 (at conservative 7% returns). This seems pretty doable, if a bit long.
50k may be tough for first few years, but there definitely should be years where you can do more than that
It snowballs very quickly if you control your spend. I’ll save 2.5x as much this year as I made in my first year pre tax (and make 6x as much as I did in my first year). That is pure money put in at cost
If anyone cares, I actually had to budget to make ends meet when I started working and kept up with it as a habit so I’ve got a pretty accurate view on my NW development
Y0: -30k
Y1: -15k
Y2: 10k
Y3: 70k
Y4: 175k
Y5: 290k (+1m DAW)
Y6 (projected): 420k (+3m DAW)
At this rate, by the time we are 50, $10m will be like $14 and a chipotle burrito
Grind your 20s and then live your life. Don't stop working, but don't kill yourself anymore. Assuming you made good decisions you should have quite a bit and at this point start enjoying yourself. Don't be that guy with a pile of money that never takes a holiday or pursues other hobbies. You really only need a few million and you're more than comfortable.
Knowing when to push yourself is extremely important for having a long career
Very good advice. It is also rational given that by the time you're 30 you should have a decent amount of money saved up. For each year that goes by, your savings will matter less as the return on your capital will become larger and larger.
What do you guys think of joining a start-up at a high position? I've seen quite a few guys leave top banks (GS/MS) when they're at the VP-level and get quite high positions within finance roles at very successful startups. Should yield a considerable amount of options / stock. A friend of mine works in a supply chain role at a very successful startup within autonomous driving. The guy joined the firm 2 years ago, straight out of a no-name university. His stock is now worth close to $1m. Totally insane. Happy to learn more about how much options / stock is usually granted at start-ups for people with a background in finance.
what company is he in?
I would rather not mention the company name, but it is located in Northern Europe.
Usually the 10m+ stories I hear often are the business owners who own companies and real estate drawing in about 20-30m per year.
I sincerely doubt a W2 worker bee can even match up to that to make that amount of cash flowing in.
This is all factoring that everything plays out and you are in good health 99% of the time.
I plan to dive into Real estate, and expand from there.
Your overarching point is right, that it is very hard as a W2 employee to get to these levels. But it is possible in finance (especially true in HF and PE), that being said it is rare and you have to be a top performer. Although, I would argue the same for a business owner or real estate investor, etc, if it was easy then many people would do it.
I have a good amount of colleagues who are worth 8 figures before they hit 40.
What makes real estate so profitable, if it's been around for very long, and a lot of people want to go into it. If there are so many people going into it, wouldn't the profits be lower for everyone...Idk anything about real estate btw
It is rather achievable if you go into a high paying career such as IB or PE. Mainly it just comes down to being conservative and investing your money wisely. If you make 700k a year and pump half of that into a combination of real estate, PE type funds, or other investments, you will most definitely reach an 8 figure net worth. Even when you don't have time to manage your investments (lets just say real estate portfolio for example) there are so many opportunities to be an LP or invest in other mostly passive ways that will get you sufficient returns. The reason most people in this position do not make it to 8 figures is because they have lifestyle inflation and start spending more when they make more.
I have a perfect example of this. I know a family friend that worked in IB in NY, made around 1m a year in todays money for quite some time. Realistic scenario and the guy never made partner but was a somewhat successful MD (valued family time a lot). Retired with around 6m net worth. Spent lots of money on travel, boats, etc. The next guy I know was a partner at an accounting firm making around 400k-500k a year in Atlanta. Retired with somewhere around 20m net worth. Every year from about 3 years after he started working, he invested half his income. Started in real estate and slowly over time branched into PE investments as well as smaller local PE type transformation deals as an LP. The guy always lived pretty conservatively and lived on a small portion of income. By the time he retired in his mid 50's, I know he was pulling in around 1m a year just from his real estate investments.
whats the point of 20m if you are too old to enjoy it
Seems like a prioritization thing.
Maybe the big 4 partner felt like his role was generally sustainable in the long-term and was mostly frugal and shrewd with his investment approach. As a result, he hit the 20mm in his mid 50s - I feel like that shouldn’t imply that he’s not enjoying his wealth though. If he was into FATFIRE, then I assume he could have left at 40 with several million still in the bank.
On the other hand, in the other example, he was interested in boats and other large purchases that prevented him from saving and investing, but he had more fun along in the way.
Saving and investing eventually provides that key aspect of optionality where you could walk away from your job any day and pursue something else you’re interested it. I agree it may not be as conventionally fun for sure to do that tho. Really like the example above since both of their approaches are a fair approach to life - just depends on what you are interested in doing
I guess I should rephrase, he lived on small portion of his income but a small portion of a really high income is still a good deal. Lived in a very nice house, owned a Ferrari among other cool cars, took multiple trips a year, that sorta thing. Just not buying yacht type boats and constant lavish trips.
You don't need any fancy pe investments for that. The future value of a growing 150k annuity at 1% growth and 9% yield on your investments (easily the appreciation incl dividends for s&p in last 25 years) over 25 years is 14m
super easy.
my boomer dad who worked in IT his whole life making like 60 to 150k has like 5 million.
bought a house for 100k in the 80s thats now worth almost 2 million (very normal in coastal areas srs)
worked his way up to like 1 million of savings by end of the financial crisis. then in his 50s, with a house paid off, kids grown up, hes basically saving all his 150k salary and watched the market more than double over a decade.
hes super rich now
a guy in finance pulling million dollar bonuses investing through a couple strong bull cycles with a house appreciating should easily hit 10million plus.
The house thing is just 8% annual appreciation ie worse than s&p since 80s
https://www.officialdata.org/us/stocks/s-p-500/1985?amount=100&endYear=…
some delusional interns above but people overall also being too pessimistic. I'm not saying the s&p will repeat this but with some conservative assumptions it's possible to achieve
marry a girl also in finance
It takes discipline, and is very doable. (This post is taken from another similar thread I posted in not too long ago)
Started my career in banking, back to b-school, banking again, then corp dev, then did some freelance work and got involved in a couple deals as an independent sponsor, and now I'm back in banking at the MD level. The earnings over the last decade have ranged from $200k to $3 million (harvested gains from the sale of a company I was involved in as an indy sponsor).
House is paid off in a HCOL area. Inherited a beach house in a desirable area, just had to pay taxes on that, and we rent it out most of the summer. We don't indulge in conspicuous luxury purchases so we keep our spending low (for instance, our house is only 2,000 sq ft and in the least desirable neighborhood in an expensive town, I drive an '05 Volvo and she has a '15 VW - having a $2.5M house and two luxury vehicles would seriously diminish my ability to invest freely). Live more than comfortably on my $300k income day-to-day while her entire paycheck goes straight to the bank.
Went all in on stocks and housing in 07-10 as a 20-something and those gains gave me so much flexibility. Real estate is kicking off $400k after taxes now and that all goes right back to purchasing more. Don't know I'll ever sell any of it off, but I'm sure I'll need to harvest a portion of these earnings to pay for college in a decade.
All early stock/housing gains and subsequent earnings have gone to further investments in private companies. Partners and I are not paying dividends and are instead reinvesting all capital back in the businesses - we're now in the recession we've been waiting for and doing some capex with vendors willing to give out big discounts and will be looking for cheap add-ons over the next few years.
I'm 42, and if you valued my balance sheet, I'd be worth $12-20M depending on the multiples you wanted to apply to the private cos. Goal is, in a decade, to harvest these investments and be sitting on ~$50mm and then be in a position to make bigger bets and really juice the net worth.
Can you explain your role as an independent sponsor? I'm not as familiar with that. Did you get equity ownership in a company? Were you involved in running and growing it?
I had a proprietary deal in the continuing education space and was able to connect them with a pe-backed company in tangential spaces. I took a small fee for arranging the transaction and I rolled over the lion's share of that fee as equity. I then received a cut of the management fee, served as a corp dev resource for them, sat on the board, sourced two further deals which more than doubled company revenue and ebitda, and then took a 15% cut of the carry.
One other deal is a slow growth, buy-and-build play and I've got ~10% equity stake, a board seat, a board fee, and I get 2% of any deals I source for the acquisition strategy. I partnered with a family office to get that done.
And now myself and two other guys do deals out of our own pockets with companies $500k-$2m of ebitda. We've got two companies now and are actively looking for more.
And all this while still having the day job, but the plan is to ride this restructuring wave and then say sayonara to banking in ~3 years.
Seeing as I don't have 8 figures in wealth, take this with a grain of salt.
But I'll say the path to 8 is much easier if you start at 9. ;)
Nobody?
Eight figures by 40s is doable with a career on the buyside in private equity or a hedge fund (although depending on what happens to interest rates over the next decade, private equity returns may be very low going forward relative to the last two decades).
It does take a little bit of luck. You need to start your career in IB then transition to PE or HF at a firm where there is room for you to climb the ranks and start getting meaningful carry economics. Also you need to be at firm that has some sort of niche/edge, not just a typical middle market/mega PE firm that does buyouts at teen EBITDA multiples - that likely won't work going forward.
The problem is most people spend 2-4 years on the buyside then waste money on B school, can't rise in the ranks, then quit/pivot to something else. You need to be at a firm that can consistently make decent returns over the long run. The big $$ comes from the carry/profits of the fund, the annual cash compensation alone will not get you there especially if in NYC/CA where you'll get taxed up the wazoo.
Also, like others have mentioned, most people in finance experience massive lifestyle creep, start spending $8k+ on rent or $3MM+ on a nice apt/condo + a vacation home. You need to live somewhat modestly for the first 20 years of your career to increase your chances of hitting $10MM+ by 40.
Can read more into net worth in finance and how carry economics work here:
Top 1% Net Worth By Age In Finance – Wall Street Edition
How Much Do People In Finance Make? Let’s Just Say, Millions.
No, it's highly likely even for underperforming individuals - if you can hang on long enough and you're a finance majority race dude (White / Asian).
The question is, will you stay alive till then? In terms of health and whether your life is even worth living.
How does your math look like for your average performed to get there?
I mean, just literally run what's market / average pay, post tax, assume you hang on to a job till retirement, and then figure out how much you can spend.
You will at some point hit 1m a year in the sellside, even if you're balding and suffering from IBS. It's just how long you want to live like that
Partner of 1 successful MF hold period can put you at close to $10mm after tax in 5 years (or whatever the hold period is) just in carry alone.
I am not in the world of big funds, just the little 'ol LMM end of the world, but at ~35 I have liquid assets of ~$1.5M (and wife + a few kids). I am unlikely to cross the $10M mark by the time I am 40. Maybe by the time I'm 45 if I'm successful and the world doesn't turn upside down too much it's possible, but by then I will hopefully be a senior leader at my firm with kids who are in middle school/high school - I'm probably not carefree/retiring and traveling the world at that point. Frankly I'm probably working hard, trying to raise normal kids, and also taking care of aging parents/family members. It's not all glamorous no matter how much money you have.
One thing to keep in mind is paper vs liquid wealth, and depending on your progression, from roughly age 30-40 as you move up, your fund/carry allocation grows and (if you are lucky) your fund AUM grows as well. Since it's multiplicative, the numbers can move up quickly.
For instance, let's say in Fund 1 you have a 1% carry/GP commit in a $500M fund. Your DAW figure is $1M ($500M profit at 2x, 20% carry, 1% out of 100% allocation). Your portion of the GP commitment (presuming normal 2% total GP commit) is also 1% - $500M fund, 2% GP commit, 1% = $100,000. That is an investment so hopefully it comes back to you, but you are sending out cash and not getting it back for a while. Note the parallel math between carry and GP commitment - the difference being the 20% carry vs the 2% GP commitment (so carry is roughly 10x leverage on your investment).
Let's say your fund does well and for Fund 2 you get promoted - now it's a $1B fund and you have a 4% allocation. Your carry DAW would be $8.0M = $1B * 20% * 4.0%. And your GP commit would be $800K. That 8x increase from Fund 1 to Fund 2 is the combination of 2x fund size, and 4x carry allocation .
So while Fund 1 and 2 are overlapping, you are getting your $1M pre-tax from Fund 1, and putting another $800K into Fund 2 (post-tax). That's how you get paper wealthy mid-career, but not necessarily liquid. That may all pan out for you in the end if you stick around and continually double down on each successive fund until you top out on carry allocation, but it takes time and multiple successful funds. If you have a long-ish career in private equity, you probably go through a few phases where that continually moves up (e.g., VP -> Principal -> Partner/Jr. Partner -> Partner/Managing Partner, etc). As you move up, the increases will get less steep (e.g. you won't necessarily quadruple your allocation each time - in my world you might go from 1% to 4% to 8% to 12% or something) so your carry dollars will start to get a lot larger than the next fund's GP commitment the higher up you get. Anyways, just a bit of lived experience from my end of the world.
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