If you were a college graduate with $1 million, would you work in IB?
$1 million is a lot of money, but it's for sure not enough to retire from. $1 million isn't as much as it used to be. Would it really make sense for someone with a million in their bank account at graduation to grind it out in investment banking though? If you somehow had exactly 1 million dollars as a college graduate, would you do finance, maybe just to put it on your resume, or would you do something more entrepreneurial? Maybe try to live off of the interest and other investments?
For those who want to work on buy-side one day, I guess the answer still be yes.
I don't think working in IB would be a good idea in this situations, unless you like it. Even though an IB analyst earn quite well, he won’t be saving any more than 30,000 per year, which is not exactly a lot if he already have a million.
I would choose an entrepreneurial mindset. I probably would have a job and invest in some fund until I get a good business idea.
Yeah, that's what I was thinking. If you have a million, you can earn a good deal over the course of a year just from investing, enough passive income to live off of if you live very frugally.
Why the hell would I go be a fucking M&A pitchbook slave when I could start my own hedge fund with that type of money? Or go to grad school, get a master’s, and then go work at one that already exists?
Some people really need to understand that being an investment banker is possibly the least interesting job on the Street, at least for quite a few years.
Start a fund with $1 million and no experience? Yeah, sounds like a complete disaster.
You sound like fun
being a pitch book slave is simply part of the process moving up in IB...it doesn't last forever and if you have any common sense, you would work closely with your staffer and come up with creative ways to take on other more interesting responsibilities.
1M AUM HF?
lol right?
this isn't 1950.
Couldn't agree more on the IB point, but the starting a HF part is a little off.
Yeah, exactly. Sure, you aren't going to start a hedge fund with that little, but you can definitely live frugally just off of the passive income, and then start a business on the side. Seems a lot better than wasting two years of your life, saving 10k-20K each year, just so you have stronger "long-term career opportunities."
Fuck no
Yes, can't even buy a decent condo for that money. Wouldn't impact career decisions.
Sure, but I know I wouldn't be trying to buy a condo if I had a million. I'd probably buy a cheap apartment and reinvest my money, and hope that I can receive a decent passive income through investments. Put $100,000 maybe a bit more into crypto currency, and then a few hundred thousand into more conservative, traditional investments, and I would be set. Use the time that I would spend creating pitch books on starting a business. Having $1 million liquid opens you up to opportunities that you ordinarily would have had to grind in finance for awhile to get.
IDK, I have something approaching $1mm in assets and don't feel financial free at all with a family. Would need 5x to realistically closer to 10x that much to probably get that feeling like I could coast off investments... 300k / year / 4% annual return = $7.5mm, if you had a less expensive lifestyle or more risk tolerance, that number would obviously change.
I'm super conservative about money though, so missed the crypto train and probably opps to invest in renting real estate.
Context is important. If it's inherited then the kid is probably an idiot and then yeah banking might make sense. If it was earned, fuck no to the fuck no.
what you're saying is: "would you work if you were financially independent?" or the lesser "if you had dramatically more money than your peers, would you work at all?"
if I graduated with $1mm liquid due to inheritance or some such thing, I'd probably still be in PWM, but what I may have done differently is bucket list type stuff. maybe I would've lived with my then-girlfriend at the beach for a year, been a seasonal bartender and travelled the world, I don't know. $1mm is enough to survive but not thrive. with the wisdom I have today, I'd absolutely work even if I had $1mm liquid at 22yo. the power of compounding could afford me a very early retirement, but I'd still have to earn a living in order for it to compound.
when I attain financial independence (my assets support my lifestyle sustainably for the foreseeable future), I might still work, but it's hard to say. most of our clients are financially independent, yet they still work because they like the challenge, the engagement, and so on. what this means is later in life you seek jobs not just for the money, but for something else. you may willingly accept less pay if you get to work with a schedule, territory, industry, clientele that is preferable, whereas in your 20s you may just sell yourself to the highest bidder.
also, for whatever it's worth, if someone is getting $1mm straight cash at 22yo, their parents/grandparents have a shitty estate planning attorney
Couldn't agree more. Sure, I could live off the interest if I didn't live in one of the largest cities, but this could be the perfect opportunity to take on a job that is more of a hobby than anything. Let that sum grow while you earn side cash as a part-time bartender, personal trainer, ski instructor, etc...
The $1 Million dollars would just give me a better life to start out with but is very unsustainable. I definitely keep wanting to go into IB (I never picked it JUST for the money). That being said the $1 million, if I invested 75% that would easily support me through a lot of shit!
Probably would go to Asset Management and use around 4% to cover living cost (NYC)
If you asked me when I graduated I'd probably say no. I'm only ~5 years into my career and I'd definitely go back and do banking again even with $1mm in the bank. The skills, experience, and opportunity that a decent IB gives you are incredibly valuable. I could do a lot more w/ that $1mm today than I could've 5 years ago, though I guess we all just should've bought crypto.
Just curious - what exact skills do you think banking gave you? Started my career in asset management, so I think that, coupled with a personal interest in the stock market and investing, probably gave me more knowledge than banking.
I've met a surprising number of kids from extremely wealthy families who choose to go into banking after graduation. The reasons are varied, but mostly boil down to 1) a desire to be independently successful (some people just have lots of intrinsic motivation), or 2) a desire to build a robust financial analysis skillset prior to going where they want to end up (family business, startup, buyside, etc.). The banking skillset is extremely valuable and I think that there are a lot of rich kids who realize that.
I'd say the only reason having $1m should impact your professional decision-making would be around taking risks. If you graduated with $1m, you have the luxury of taking on additional professional risk (for example, starting a company) without having to worry about potential financial consequences of failure.
Bump
Yes. IB Analyst is an scarce apprentice position. You will build a network and learn valuable skills that transfer to many other areas of life. Many other IB analysts have significant family money, so you're not making a unique choice. Corporate etiquette, transaction structuring, due diligence, market sizing/pricing are critical in any field where money is made.
$1MM isn't enough to retire at 22 near any coastal city . However, it is enough to fund multiple business opportunities and/or get full time gig doing something low ROI that you love (chef, personal trainer, navy seal, etc).
400k at 10% semi-passive return is easily attainable and enough to cover food/rent almost anywhere. The rest should be invested in opportunities where you have an edge or are getting dual utility (ie 2 family house, where you live on one floor).
not sure how you can say being an Analyst is a scarce position. These jobs turnover on average 40-50% a year and banks are constantly looking for talented analysts to feed the pipeline.
I hope you're kidding. If each IB analyst class for every BB is 50 people, that's less than 500 slots a year. 15k ivy league students graduate every year. So, banking can only absorb 3% of top tier students. That excludes semi targets. I'd guess less than 1% of college seniors from top 50 undergrad programs could get an IB job if they wanted it. That's scarcity.
(in the US)
Outside the US, sure.
I would suggest neither playing the markets nor living off investments nor working in IB.
If you've got an entrepreneurial streak then my suggestion would be to go buy a business!
There are some great businesses around and the interesting bit is that $1m can buy you a lot more than you think. Combine your liquid funds with an SBA loan and some seller financing and you could reasonably expect to pick up a sound, profitable business selling in the $3m - $5m bracket.
Given that small businesses often sell for less than 5x profits (a very, very general figure - actual valuations vary widely), you can pick up earnings of up to $1m per annum using your $1m capital.
Am happy to provide further advice on this as it's my area of speciality. Hit me with any questions.
^This.
By the way, what do you think of the search-fund model and starting a search-fund right out of college with $1m looking for a profitable, service-based business with low overhead costs/maintenance?
Certainly doable (though you'll find you have a lot of competition from people just like you who've been bankrolled by mom and dad).
The problem is that lack of experience actually running a business can be a serious drawback.
Don't get me wrong, back in the day, with a high gmat score and an MBA from a highly reputed university, I was as arrogant as they came and confident I knew everything there was to know. I was just like any other fresh graduate.
Since then life taught me a lesson or two and I find that after almost 40 years of being in business what I know is really jack shit and I am still learning every day! ;)
While I'm not a great fan of partnerships I would advise that having someone to hand - someone with real life experience and proven competence in the industry - can make all the difference in the world to your chances of success.
If I were you I wouldn't focus so much on the "low overheads" but on proven profitability, history of profitability and steady growth. Pay for expert assistance with analysing the risk and shunting as much of the risk as you can on to the vendor himself (via earn outs, deferred payments, indemnities, warranties etc).
All the best of luck!
How does one go around finding said $1mil business? And wouldn't it be that with the lack of actually real life and business experience you invest poorly and just lose the money at age 22?
I have a good sum (not quite $1mil though haha and its in form or real estate) from inheritance coming in at 21 and I'm certainly interested to learn more about what you're talking about just out of sheer curiosity.
You can find businesses for sale at various MLS just like you would for houses. Try this.
You can also hire a business broker to find you a business that matches a pre-agreed mandate.
And you can do some legwork to find businesses not on the market - buy data of businesses in your chosen sector / state etc., and contact each owner to see if they'd be willing to sell. Then get professional or experienced help with negotiating a fair deal and checking the business over.
Tip: In dollar terms aim lower than your available capital as you will need some money for lawyers / accountants and the like but it's also good practice to have a bit to fall back on in case you need an injection of working capital to cover a situation ... or you lose some staff and need to pay recruiters to find you new staff or ... some other eventuality arises.
Anything less than $30MM and I'd probs still be looking to break into finance through IB/PE, if anything just to ensure that I didn't look like a layabout to any future investors I might want.
Absolutely not. I'm with everyone who is saying start a business. A million is enough that if you just dump it in an index fund and don't touch it, you won't need to work when you're 30 anyway. Your risk function totally changes- you should do whatever you are most excited about working really hard at. I would have tried to become an artist.
Fucking hell, no way. Anyone that said they would is a fucking buffoon. Including the aspiring hedge fund manager. I'd allocate 300-400k for downpayments/improvements on real estate and rent houses out, 200k on crypto, and either travel the world or live somewhere cheap like Czech Republic and blog about life with the rest. Then wait for the mortgages to be paid off on the rentals ~25 years, leaves 20k per year in the bank, plus the profit from the cryptos (it would be a buy and hold for me for say 5 years) and a positive spread on the rental income. You can live very well on an income of 70-90k USD per year in somewhere like Czech Republic and of course, you'd have all the free time in the world, and you'd be rich in 25 years. Offloading the rental properties in increments would probably be the most pertinent way to do it, benefiting from any appreciation in house prices.
Time machine
100% yes.
If I had 1 million as a new grad I would definitely not be in IB haha. I will make the government 1 million through taxes before i ever see one million in my bank account :(
Most people who says "if I had US$1MM upon graduation, I would never work for investment bank" are most likely the ones who never really had that money in the first place.
Came from a pretty well off family just like my friends who own multiple homes (~US$3-5MM/ each home) with SME businesses that make ~US$50-100MM in annual sales. We are still working at investment banks, management consulting firms and private equity shops.
For most of us, it is not about the money. It is trying to do things your own way to eventually to establish yourself as an individual and build your own company with your own money.
The amount of peer pressure that you get to out-do and out-smart other rich kids are mentally exhausting. People might say that you are already rich and you are just comparing yourself to other rich kids who are not the sample size of the population. But in reality, human like to compare with people who are close to them so relatively speaking someone with US$10MM in net worth is pissed broke compared with someone in the US$100MM range. It is all about the perspective.
I would work yes, but not necessarily in IB. A million is decent, but doesn't go far these days. The smart thing to do is to use that money to get the job you ultimately want. I would pester the PE/AM/HF/VC firm of my choice until they agreed to set up a meeting. I would then tell them that I want to work for no one else and to prove it I will work for free, full time as an apprentice, until they think I learned enough and am ready to get on payroll. Furthermore, I would also tell them that I would put my money where my mouth is and invest at least half in their fund. You eat what you kill or you don't eat at all.
The reason why most of us chose finance is to become a millionaire at some point in our lives. Once I am a milionaire already, I would pursue something else other than money.
lol you spelled billionaire with an 'm'
Millionaire for me. I'm coming from a non-target. For me the ceiling is becoming a Career Banker or a Tier-2 Management Consultant.
That's the point I like. If you're a grad with 1m, you can write a book, gather a rock band, travel around the world, do whatever you want. And then, maybe, later start working, probably in IB
is that 1mil before or after inheritance? important to know.
For those that would want to work, how long would you work for? Those 100 hour weeks don’t go away once you move up the ladder. I’m a huge believer in the value of time over money.
that is right...I coach Directors and MDs and believe me, they are working 100 hour weeks.
-Deleted- Disregard
Whoever goes into IB purely for money won’t last long. So yes.
What are some good reasons other than money hotshot? I simply refuse to graduate college settling with 50k as an engineer, or even worse make no money and go into debt as a Medical School Student.
Lol. Again, I’m not saying people don’t go into finance for the money. They just don’t last long. GL.
But sure, working at a firm where the mean age is under 30 and not 40+; getting real responsibility and not fetching coffee for the first couple of years; and doing something more exciting than a dull 9-5 job
I graduated college with $400k to my name. Insurance proceeds from a parent who passed away when I was young. Went straight into private equity and cranked it out for 7 years. Ended up with a net worth of approx $1.2 million.
Last year I left the industry to go back to grad school and pursue a career in a totally unrelated field that I'm highly passionate about. I certainly have "ego" moments where I miss the prestige of the industry, but it's been almost a year and I still have yet to regret my choice.
I figure that $1.2 million will yield me about $50k a year. This doesn't quite cover my current annual expenses, but comes close. I'll graduate and start my own private practice in 4 years time and expect to make ~$100k annually within the first five years. If I cared about the money, I would have stayed in private equity.
I came to the realization that I valued my independence (not working for the man) and ability to spend my days helping others much more than having a couple extra million in the bank.
Half the people who know my story look at me sideways, especially because I had just gotten to the VP level and started to make serious bank, but hey... to each their own I suppose.
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