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.

 

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.

 

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.

 

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%. 

 

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.

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.

 

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.

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

 
Controversial

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.

 

spencerjohn

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

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 

 
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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 $.

 

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

 

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|

 

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)

 

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

 

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)

 

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 

 

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. 

 

I would rather not mention the company name, but it is located in Northern Europe.