Building Wealth Through IB vs Owning a Business
Jeez this is an ambitious question. Which choice would have the greatest odds of making someone really wealthy?
1. investment banking, working your way up, etc.
2. starting in money management (prop firm, hedge fund, etc.)
3. is this even possible but Forming your own investment bank, commercial bank, insurance company, etc.
4. forming a tech startup
5. a professional services firm (like PwC, Deloitte, etc.)
Make an app that makes poop noises, and you'll make more than you ever would at an ibank, hf, consulting, etc.
Starting a company (not necessarily a tech company).
It all depends on how you define wealthy. I would probably say with the current hype around start-ups, you're chances would probably be the best starting something with the right people and then build it to a decent size and sell it. Then again, there are numerous people who say that this attitude of thinking about the exit before having actually achieved anything is not the mindset of a successful entrepreneur.
something I've always been curious about though, could one startup a bank or professional services firm today? like a niche type Goldman or PwC
Yes. There are hundreds of boutique banks/accounting firms/consulting groups out there. Scaling them isn't easy though.
But they can still bring in good cash and be local right? & just curious would I only be able to launch one after like 10 years at a firm?
Bank in the sense of advisory. Commercial bank or insurance company would be (IMO) nearly impossible given current economic and regulatory climate.
know some folks who started a small bank a few years ago. They pooled about $20M of capital and from what I hear it's doing okay. Would not recommend insurance, unless maybe a brokerage company. Straight insurance is a low ROE business and who would want insurance from a tiny company versus MetLife?
People I know who are the happiest and have the best quality of life are those who own their own businesses. Could be anything, a drycleaner, auto repair, plumbing, construction, tech, whatever. Working on my own personal business and may be on track to do it in the next 6 mos.
I agree. I think that the very utilitarian businesses are often overlooked by a lot of younger people today in favor of sexier tech start ups. Owning a drycleaner, car wash, or gas station, etc would be a pretty good way to have a successful business depending on location and market. Most people just aren't attracted to running those kinds of things though.
Also, brokerage/bank would seem difficult to me since you'd need to connections or employees with connections/books to actually generate some business. Have to possess some credibility which usually has to be earned by actually working in the industry.
That's true. I had a girl in my undergrad who owned several gas stations, cell phone stores and a McDonald's. She was 2 years older I think.
Obviously she inherited that wealth...
Nope, not at all. She started working when she was 14 and then went and invested in the real estate bubble but got out early enough to not lose all her money. She then started building all these businesses in the midwest, mainly in high growth areas that were not as heavily populated.
Its people with this mindset that cause the problems we have in this country today. Anyone with money either got it through an inheritance or stole it. Instead of making idiotic assumptions you should ask questions.
I agree. But didn't you inherit a shitload of farmland or something?
I did. Your point? People feel that just because you inherit money or property that you become this lazy bum and just live off of it. Rather than take your advantages and turn them into more.
I think in this instance (an undergrad girl owning several physical property businesses), it kinda made sense to question where the capital for those businesses came from. You questioning someone making that assumption seemed a bit ironic given that you had the advantage of starter capital.
I mean, seriously... I had to be skeptical about a teenager (girl) owning a franchise that requires a few mil liquid to start, then on top of that she owns a few gas stations? Then I get called out by a guy who inherited 50MM?
@Heister I can probably count on one hand the number of chicks I know who know what a "franchise" is, so forgive me for jumping to conclusions. Also, we haven't confirmed whether or not this chick is a liar, or am I making "idiotic assumptions" again?
Yeah, I give you that one. I never asked for verification. However, she was also invited by several professors of the business school to give guest lectures on entrepreneurship when she was a senior.
I'm not saying your friend's not a rich genius, but I just found it odd for someone that age to choose to invest in franchises. Odd for someone with the risk appetite to invest millions in real estate, no?
She's not my friend. I talked to her two or three times after class and at a party.
I don't quite see why it's odd for a ~25 year old to invest in franchises? And as far as risk appetite goes, shortly after, almost the entire US population got an appetite as well, so I guess she was just lucky.
Luck, skill, inheritance... it's all the same. Time will determine those who really deserve it.
You don't see why it's weird at that age? For one you would need several hundred thousand in cash to own those, and for another you would need prob close to a million in assets to back it up. That's being conservative...
and because you don't have/had it, no one else can?
How could she have done it?
Easy, buy a few houses in SoCal at the start of the bubble with 120% interest only loans and sold out at the top. Then taken that money into franchises.
So she made a million in this hypothetical fantasyland you are thinking up? If it's so easy to do at that age...why aren't most people millionaires?
For one, I did not inherit 50mm. My inheritance at todays land prices would total around 10mm. At the time it was just under 5mm. I through my own cunning increased my wealth greatly in the time since.
Good point.
LOL! The "best quality of life"? Is this a joke?
I'm good with owning my own hot dog stand in Central Park. Overcharge the tourists & watch the ladies jog on by...
Just buy a laser-tag, but make sure it has a Danny.
ooh, another idea: what about starting my own prop firm?
I'm trying to figure out how working at 14 would give you enough money to do RE ventures of any kind, let alone ones that pay out enough to start 5 distinct franchises.
.
Man every thread turns into a version of the debate on whether benching 185 20 times is hard
yah i don't even remember what i asked :D
Completely depends on what 'wealthy' means. If you mean $100+ million dollars... definitely not in banking.
The dumbest ideas on your list was starting an investment bank or professional services firm. (a) thats a capital intensive business since its a people business and you have to have a solid enough amount of capital to lure people over and exude some form of stability; (b) they are also really really competitive with maybe a handful of players who lead the entire market and everyone else follows... and by everyone else I mean an army of 2nd tier competitors and smaller/regional/niche players.
Next was the HF/Prop Trading suggestion. That is not exactly a "I think I'll do this for a living" type field where you can make a fortune. You either have it or you don't. You might as well throw heavy-weight boxing prize fighter on your list.
Lastly, a tech start-up I see as a one in a bajillion likelihood. You've got so many unknowns. Atleast the same amount of unknowns as a traditional business... but add to that the fact that your concept is (most likely) completely untested and very likely lack efficacy.
In my opinion, the best route to making a large sum of money ($100m+) would be starting a business... maybe after you've saved up some capital. And somehow get some leverage on that capital. I feel like you're more likely to make a ton of money by starting a construction company, restaurant chain concept etc... than creating some stupid fuckin app.
I like this breakdown
thanks, you get my last SB :) edit: so if i re-did my list, would construction / engineering consulting / real estate be less quixotic? it's not like this is something I gotta do now, im only in high school, but i was just curious.
Dude, if there was a step by step way to get rich, everyone would be fucking rich.
Damn straight.
One other thing, if you really want to make a BILLION dollars you need to move to a place that has little to no regulations and absolutely exploit the situation. In the USA unless you hit the one in a billion idea and happen to be in the right place at the right time its extremely difficult to reach that level.
That's legit, but honestly he said "really wealthy" and I put that in the $30mm+ category. Well maybe that's wealthy. In that case, really wealthy would be $50mm+
This is such a hard question to answer because the definition of wealthy to every person is different.
In terms of obtaining the greatest possible financial return, I think it would be owning a successful company but it would have the lowest odds and the highest risk.
In terms of obtaining a good solid amount of money with relatively higher odds and lower risk, it would be banking or consulting.
Some think that really wealthy means 'billion or bust' while some suggest it means '50 MM'.
So it depends. What is your definition of really wealthy?
double digit millions, ~20MM i guess. just thinking about career choices
Most folks in America become wealthy through real estate and owning/creating businesses. Innovate, buy assets, create cash flow, sell based on valuation. Buy low, sell high, repeat...whether its turning around a distressed business, developing a multifamily RE property, etc. Or even managing a portfolio of investments, because at the end of the day, regardless of the asset class, that's all you're doing anyway. Your path is based on your passion and patience.
And be balance sheet affluent, not income statement affluent. Check out The Millionaire's Mind. It's a good read.
For true start with nothing beginnings I hear stories of people becoming wealthy via real estate more than anything else. Either multi-family investments, or other commercial.
I think building a constant revenue stream from multiple assets is the way to go - even if you have to start small.
It's easy just put "Budding Social Entrepreneur Always Looking for New Challenges" as your LinkedIn title.
You need to keep in mind... while you may hit double digit millions in banking... you'll hit it if you're a star on wall street and you'll hit it after decades on the street.
MD when you're 32; average $3m / until you're 45 = $36m tax effected = $23m less 12 years of living expenses: ($30k month mortgage, $350k/ yr. expenses) = $8.5m Net Liquid Worth = $14.5m
So you're not exactly Biebs walking around with +$50m liquid worth with the best years of your life ahead of you to enjoy it... eating 3AM cheese burgers and pussy and tweeting about it all the while.
When I think of what wealthy means to me there are two components: (1) the number, more like $100m+ and (2) my age; its not hitting it when I'm in my 40's or 50's. Its hitting it when I'm like early 30's.
haha yeah i was thinking double digits when I'm 31 or so. is that way too high an expectation?
Not if you're a rockstar trader. But you're probably not going to be a rockstar trader.
What's up with all these threads "how to become a billionaire/wealthy/millionaire etc..." on WSO lately? my 2 cents: Banking, PE, HF -> safer and less risky way to become substantially rich. (except owning PE fund or HF) Entrepreneurship-> more risk and more uncertainty but sky is the limit (it can go from bankrupt to billions)
On an internet forum for people who are vying for or already are working in a field predicated on making obscene amounts of money and where the people who do best prioritize monetary/professional success above every other facet of their life... a few stray internet wanderers end up here and completely out of left field post something about ways to become immensely wealthy.
I share your sentiment. WTF gives?
I'm so glad you're here right now, this forum needed some entertainment value
I love the ideas of how to become a billionaire.... Own a HF, own a PE fund, start an investment bank.
Things missing from this list: 1. Write and star in an 11 season hit comedic sitcom about nothing that gets simultaneously syndicated by +3 major networks 2. Create a sci-fi fiction series that then goes on to become a movie series with a religious following 3. Become British, grow floppy hair and take the pop world by storm 4. Invent an "electronic thinking machine" and make it accessible to the broad consumer public 5. Extract and sell large quantities of prehistoric organic matter thats been geologically transformed into a combustible energy source
My friend's father opened up his own boutique investment bank about 10 years ago. It's a very small family shop, but he's easily clearing in $10M per annum.
I don't believe this, not just because that's a hell of a lot of money for a "very small family shop" to make, but also because I doubt you have any clue how much they make.
What makes you doubt that I have any clue on how much they make?
I'm guessing most of us here would consider "Wealth" as in "50...100 Million Dollars buddy. A player." ala Gordon Gekko. If so, my answer to your question is something that you won't like hearing: their odds are all equally slim.
If you get every datapoint of every individual, I can bet with confidence that the differences between the probabilities of each option will not be significant. Here's why:
--- 1. investment banking, working your way up, etc. ---
Aside from all the bureaucracy, you need all those key relationships to bring in big deals, and you won't have them unless Daddy has connections or you somehow found a way to make your boss let you do his/her job.
While it's true that there are some really young MDs, just think about how many there are vs. the total number of analysts/associates out there.
If you're a prop trader, there IS more room for a young star to rise above the fold and get million dollar bonuses. Again, consider how many are there vs. the total number of traders trying to "make it big". Trading is no walk in the park.
In either case, besides your intelligence, skills, energy, and sheer determination, you need some luck as well. That's out of your control.
*If you define wealth as $200 - $500k before bonuses a year, then sure, you have a higher chance of being "wealthy" working in this industry. But keep in mind that being a MD is no walk in the park either. You need to "entrepreneurial" and bring in deals, or you're sacked.
--- 2. starting in money management (prop firm, hedge fund, etc.) ---
Same as above.
--- 3. Forming your own investment bank ---
Even tougher than being a good MD. Besides bringing in deals, now you have to worry about operations, recruiting etc. You may pocket a little more for yourself, but you take on more responsibilities and more risk.
--- 4. Forming a tech startup ---
The failure rate of startups says it all. I highly discourage anyone who's doing this with the sole goal of "making it big" in their 20's. You may be the President of Phi Beta Kappa at Harvard and made it to the top 95% of analyst class at Goldman. But almost none of that matters in this world.
The experience of building a startup is NOTHING like what you read in the media: the billion dollar acquisition announcements, the big fundraising rounds, the "Victoria Secret Models" in Silicon Valley (that does not exist, trust me...ask the real Sean Parker).
You have to be passionate about building and selling your product, know when to iterate, and how to garner and build great relationships with your customers, quickly. And after all this, the outcome still depends greatly on luck: timing, your industry's growth trend, your market's readiness to adopt etc. All of which, again, is out of your control.
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