How to be rich as a banker in London 101?
Incoming full-time analyst here - did not have much growing up and want to make sure I use my IB paychecks to its fullest to save, invest and grow my asset base this Summer onwards. Any associates, VPs, Ds, MDs who have increased their net worth by a lot via saving and investing, how did you do so and how would you recommend getting rich?
Make more, spend less, make higher returns on capital, or marry into money. Last one very important. If you've come from humble backgrounds, you'll quickly realise there is more money around than you thought. Banking puts you in proximity to a lot of wealthy people. Even many of your class will be from wealthy backgrounds. Your friendship groups that blossom from this will be, by nature, wealthier and/or from wealthier families. Why make your own money when you can just borrow someone else's?
Wouldn't it be a bad idea though to marry into money especially if your SO works in the same industry as you? Imho, there's a lot of personality issues esp. the type-A type, which I would struggle to get past (as someone from a low-income background)
I'm not saying you should marry someone you don't like for money. I'm saying the chances you marrying into wealth go up if in IB, as your circle changes.
I'm also not necessarily talking about other people who work in IB. But say for example, you become mates with someone wealthy in IB (because you like them, to be clear), that person is likely to have other wealthy friends, some of whom may be women (or whatever) who you also like... Yada yada yada.
Did not realise the level of financial education needed on this thread. You guys need this website: www.ukpersonal.finance
There’s no big secret to saving in the industry. Live below your fixed and invest your bonus. The longer you stay in the game, the more you'll accumulate. As you move up, resist the urge to scale fixed costs. Housing, cars, schools, once you level up, it’s near impossible to scale that back, even if you need to.
And don't marry someone expensive.
I have heard of interesting ways people have invested their money - think of art, and other vintage items. Yes, I agree you will meet people from wealthy backgrounds who spend a lot, but some are quite smart with their money. Try learn from them, but don't pick up bad spending habits.
Specific advice for UK - try to max out the 60k pension (make sure your pension is in something like a cheap world index fund) and the ISA 20k limit annually. The ISA cannot carry forward, but the pension you can carry forward up to three years of unused balance. Many firms offer an option to sacrifice your bonus into pension on a tax free basis as well. Doing the above is extremely tax efficient and you can drastically increase your net worth. If you're doing well eventually you'll lose your pension cap but early career it is great for tax efficiency.
Thanks for the detailed advice! I have a few questions regarding maxing out the pension in the UK. What are the actual benefits of a maxed-out pension compared to investing in an ISA or a regular index fund? Is it possible to access or withdraw the pension capital before reaching retirement age if needed? And what happens to the pension if I leave the UK and move back to my home country, such as Germany or France? Can it be transferred or accessed from abroad?
Incoming A1 in London as well
Pension is pre tax, so if your marginal tax rate is 40%+, instead of putting post-tax income into investments you can put pre-tax money into investments so it is more tax efficient. You can leave the money there and acces it as normal if you move abroad. Depending on the country you may pay tax to the UK or the foreign country once you start to draw it down, depends on the double taxation agreement. You can also withdrawn a lump sum tax free once you reach the required age. Currently the age to acces is very low compared to a typical pension access age so that's also a plus. If you're intending to invest for the long term might as well do it with pre-tax income.
Don’t buy a car
Would anyone recommend starting BTL properties on the side? Use your bonus to put a downpayment on housing outside London, collect rent and capital appreciation?
Interested in this aswell if anyone could comment if it worked for them, best way to go about it etc.
My view is that the time and effort it takes to potentially get 15-20% on a small BTL investment is not worth it when you can get 10% in the markets and use that time and effort to increase likelihood of getting MD etc
Yeah that makes sense the time commitment of BTL must be near impossible given IB hours… I think it’s more the idea of having that tangible asset that appeals to me, especially when your tenant will more/less be paying your mortgage for you.
But yeah public investing defo easier lifestyle wise
Hi OP - as someone who has considered this myself, my advice is definitely not. For the following reasons:
Which brings me neatly to the last point - Labour government is very anti-landlord. Rent reforms are expected to come in to make it even more difficult to kick out tenants, cap the amount you can increase the rent by.
Honestly the big returns in BTL were 20yrs ago in our parents' day, it isn't a money-maker anymore (hence why so many BTL landlords are desperately trying to sell atm, contributing to the current rental crisis due to lack of rental stock)
Those points all make very good sense - thanks for putting that together. That tax point about getting taxed basically on revenue is crazy😂 that alone would put me off
Would definitely recommend. Lever up 75% LTV and you’re not talking c20% returns - more like 40% just on rent + refi/ capital appreciation if you force value. A good letting agent and or plan to add value to the property is essential to make this work. This should be done in a LTD not personal name to benefit from interest deductibility
Has anyone actually set up a LTD company for passive property investments whilst also working in IB? If so, how did that process with Compliance go?
Also I heard seed investments in privately held start ups can be lucrative - anyone successfully done this?
Really need to know what you're doing/have a network in startup scene
There are lots of tax benefits from it if you have a high income. But tbh, until you are vp, isa and pensions are more than sufficient
Move to Centerview/PJT
I’m an incoming SA, curious about the investment regulations. Can we invest our bonus or salary into stock market buying ETF kind of stuff?
As someone who grew up in the UK and worked in London in IB/PE for years, the answer to how to get rich is not easily unfortunately (due to the crazy high tax rates we have now). There have been some good suggestions on here already, here are my thoughts on them:
LISA - maybe worth it if you're buying a home in a few years (although the threshold is quite low)
So in summary, not many ways unfortunately. In my experience most Ds and MDs who are very wealthy in London tend to either be older people who bought their houses when they were half the price (in real terms) that they are today, or people who deliberately live really far below their means. Btw I detest 90% of reddit but HenryUK sub-reddit is actually really good for tips on being a higher earner in the UK. So would recommend checking it out as well.
If one does start BTL and lets say you build a portfolio around 300-500k worth - could you use that asset base as leverage to take out a higher mortgage with private lenders perhaps? According to my maths if I was to buy a £2.5m house (2m mortgage, 500k deposit) near senior associate/ VP days and I use income of ~350k and partner income of ~60k, does asset based lending help bridge the gap to take out a bigger mortgage? Just thinking out loud. Has anyone gone through the process for this/ heard of this?
Ironically this is one of the better ways to build wealth in the UK. No cap gains on primary residence + assuming you are buying in London that house will be £10m+ in 25 years when mortgage is paid off.
At a 7 % annual return with equity funds you’d have to invest £150k gbp a year, which is about the same as costs on a £2m mortgage but that is of course not factoring in that you need somewhere to live.
Or go 50/50 maybe buy for 1.5m and invest 70k a year into liquid index funds etc.
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