How Much Do People In Finance Make? Let’s Just Say, Millions. - Buyside Hustle (2024)

How Much Do People In Finance Make? Let’s Just Say, Millions. - Buyside Hustle (1)

You don’t realize how much people actually make in finance until you work in the industry. Yes, sure you can make around six figures at some of these fortune 500 corporate finance role or be an investment banking analyst making close to $200K a year just a year out of undergrad, but that’s not where the real money is made in finance. It’s not even close to how much the big players in finance make.

There are a few sectors within finance where people with just a few years of experience can make mid six figures or even millions. I know there are probably people reading this blog who have absolutely no idea how much some of these 20-year-olds make and are probably saying I have no idea what I am talking about. Trust me, I was once like you (about me) and knew nothing about finance careers in college or even a few years out of college.

I’ve been in this industry for over a decade now and I’ve seen it all. I’ve seen the classic investment banking Vice President make over $700K in 2021 during the greatest year ever in investment banking, and on the other end of the spectrum, I’ve seen 40-year-old hedge fund managers make $40 million.

$40 million??? Yes, I am not lying. Keep reading below and I’ll walk you through how that is even possible.

There are only two ways of making obscene amounts of money in this world:

  1. Start your own business
  2. Have ownership stakes in businesses

Sure, anybody can make a good living being a doctor or a lawyer or an investment banker where you can make ~$200-500K per year a few years after you finish with your studies, but you hit a ceiling very quickly unless you start your own practice (aka start your own business).

To make real money you need to own equity, an ownership stake, in something. Ownership is everything. Without ownership, you will never make a lot of money. You will be a salaried employee for the rest of your life capped at best at mid to high six figures every year.

Now there is nothing wrong with mid to high six figures. That is a boat load of money compared to the average annual household income in the US of ~$70K. For the vast majority of my life, I always thought that anywhere above $200K a year was a ton of money. You can be very comfortable in most suburban towns in the US with that much money. But that is nothing compared to how much you can make when you have ownership of a business.

Why does ownership matter so much?

Think of the two completely opposite ways to make money:

  1. Exchanging your time for money
  2. Passive income

Exchanging your time for money. This is where you work and get paid a fixed amount by the hour. The more hours you work, the more you get paid. Now this is the worst way to make money. There is only so much time in the day so you are capped at a set amount of money every single day. Sure, you can get to the point where you are some hot shot lawyer or doctor and can charge a thousand dollars an hour, but you will always be a slave to work in order to make money. If you don’t work a given day, you won’t make any money.

On the other end of the spectrum, passive income is the best way to make real wealth. Sure, you have probably heard of this dozens of times across the internet, but being able to make money by sitting on your ass is undoubtedly the best way to make money, and also the best way to get extremely rich.

Passive income is scalable. It doesn’t depend on time. And the one thing that all passive income sources have in common is ownership.

How does working in finance give you ownership or passive income?

In finance there are sellside jobs (i.e. investment banking, equity research, etc.) and buyside jobs (private equity, hedge funds, venture capital). In virtually all sellside jobs you are capped at how much money you make. Unless you are an amazing salesperson or networking and can bring in a ton of business, you will be capped making mid to high six figures at the peak of your career.

The upside in buyside jobs is completely different. In those first few years on the buyside you won’t be making much, but 5 to 10 years into your buyside roles is where the real money starts to come in.

Why do buyside jobs offer unlimited upside?

This goes back to our point on ownership. The amazing thing about working on the buyside at a private equity firm or hedge fund is that you don’t need to start your own business to get an ownership stake. Working at one of these types of firms lets you indirectly have ownership stakes in numerous businesses all at once through a beautiful thing called carried interest.

That’s the beauty of investing. You invest in businesses that generate returns 24/7 without you having to work at all. Over the long-run these businesses generate cash, pay dividends and become more and more valuable overtime.

How much can you expect to make working at buyside vs. sellside jobs? See below:

  • Investment Banking Salaries and Bonuses
  • Private Equity Salaries and Bonuses
  • Hedge Fund Salaries and Bonuses

What is carried interest?

Carried interest is a simple concept that exists only in the finance world. It is basically a cut of the profits you earn for your investors.

Let’s look at the economics of a typical private equity firm. Say a private equity firm has $1 billion of capital from other investors to invest over an ~8-year time period. That money is not your money, it is given to you by investors to manage. In return for managing this money, investors agree to give you ~20% of the profits if you meet a certain return requirement (usually 6-8% per year).

Let’s assume the private equity firm invests that $1 billion and doubles its money, so profits are $1 billion. The owners of that private equity firm literally keep $200 millions to themselves. And its not like these firms have hundreds of employees; you can run $1 billion of capital with just 5-15 employees.

Now of course the owners of that private equity firm keep the vast majority of that $200 million, probably around $160 million give or take and $40 million gets split up amongst the rest of the team.

Why do these firms get to keep so much of the profits?

It’s very simple. There is so much demand out there to manage money. Every single day, more and more money gets created. Governments around the world are printing trillions of dollars a year out of thin air running massive deficits. It is a guaranteed fact that a decade from now, there will be trillions of dollars more out there in the system for someone to manage.

Now who is going to manage all this money? Sure, a lot will go to the classic long only funds like Blackrock and Fidelity, but given there is so much money out there, there will always be demand out there for “alternative investment vehicles” like private equity firms and hedge funds. Especially those that can show consistent levels of good returns.

There are definitely funds out there that do not make good returns and charge ridiculous fees for doing so. Overtime, these firms will go away. But if a fund can at least make market returns net of fees in an uncorrelated manner (i.e. that doesn’t depend on whether the overall market goes up or down), then why wouldn’t all these pension funds, endowments, and institutions give these funds their money?

Carried interest payments take time to materialize

The problem I see with any young mid 20s buyside kid is they expect to make a lot of money very quickly. They don’t have the patience or the stamina to stick to one industry or one venture for a long period of time. What I have found is that real wealth comes in stages. You can go 3 years, 5 years or even 10 years without make life changing money then all of the sudden your net worth goes up 5-10 times (read net worth by age for those in finance). But if you leave before your carried interest or equity vests, constantly bounce around industries or firms, none of those payments will materialize.

Unless you got lucky and made a killing on cryptocurrencies or investing in some friend’s startup, there is no quick path to wealth. It takes time doing the same thing day in day out for multiple years before you see any progress.

There is always an element of luck involved in making money

Carried interest is worthless if you work at funds that don’t consistently generate good returns. A large number of private equity and hedge funds out there are basically levered to the market and don’t have a meaningful “edge.” Every fund will tell you they aren’t, but in reality, most funds depend on valuations going up over the long-run. It’s tough to differentiate between the winners and losers because the market has gone straight up over the past 50 years.

The reality is luck has a big role to play in whether or not a fund generates good returns. Each fund has its own strategy, industry/asset class focus, and these come in and out of style every decade.

For example, the 2010s were a period where valuations of technology/software/growth-oriented companies grew exponentially. Any fund that invested in these industries, regardless of whether they were smart or not or picked the best investments, made a boat load of money. A rising tide always lifts all boats. Now good times don’t last forever. Different asset classes or investment styles are favored in different investing environments and there is not much you can do about it other than joining funds that have successful track records over long periods of time.

Quick Update on the Blog

It has been well over a year since I posted on this blog, so apologies to all my old readers who enjoyed all the finance content and advice over the years. 2020 to 2021 was one of the busiest moments of my life. You can imagine how busy it was working at a hedge fund at a time when everyone thought the entire world was heading to a depression due to COVID.

That said, Buyside Hustle is back in business now. We will post content on a regular basis going forward. If there is anything you wish to learn more about in finance or have any questions in general, feel free to comment below.


How Much Do People In Finance Make? Let’s Just Say, Millions. - Buyside Hustle (2024)

FAQs

Can you make millions working in finance? ›

Hedge fund managers can make tens of millions of dollars because of a similar compensation structure to private equity; hedge funds charge both an annual management fee (typically 2% of assets managed) and a performance fee (typically 20% of gross returns).

Do finance majors make 6 figures? ›

Salaries in the finance industry

According to the U.S. Bureau of Labor Statics (BLS), careers in finance pay a median salary of $76,850 — 66% higher than the median salary for all occupations in the nation ($46,310).

Can you make lots of money in finance? ›

The finance industry offers some of the highest paying entry-level jobs. And top-paying entry-level finance positions currently in high demand. There are a lot of different paths you can take with a finance degree, so it's crucial to learn about your options and explore various career opportunities.

Is a hedge fund a good career? ›

The top individual Portfolio Managers can earn hundreds of millions or billions each year. Hedge funds offer a much higher pay ceiling than investment banking, (sometimes) better hours and work/life balance, and the chance to do more interesting work.

What is the highest paid job in finance? ›

The top 5 highest paying jobs in finance are investment banking, hedge fund management, CFO roles, private equity, and actuarial positions. These careers typically offer substantial salaries and the potential for significant bonuses.

What is the hardest job in finance? ›

Trader is one of the most stressful jobs in finance. Traders may not work quite the crazy hours of investment bankers, but they have a sharper, more acute level of stress.

Is finance a tough major? ›

Finance is a somewhat difficult major. The difficulty with finance comes down to its concepts that students would not have experienced before in their lives, the financial lingo in the field, and the concentration of math in the subject.

Is finance major math heavy? ›

One thing that's for sure is the high amount of math you will need to study. Finance is a mathematical discipline, so if you aren't as comfortable with math as with other ways of thinking, you may find it more challenging. Additionally, finance also makes use of a vast, highly specific vocabulary.

Which field is best in finance? ›

This blog lists the 15 highest-paying jobs in finance to help aspiring professionals understand industry trends better.
  • Financial Manager. ...
  • Treasury Manager. ...
  • Financial Analyst. ...
  • Investment Specialist. ...
  • Internal Auditor. ...
  • Financial Risk Manager. ...
  • Economist. ...
  • Financial Advisor.

Is finance still a good career? ›

Finance degree jobs can provide relatively high pay, stability, opportunities for advancement and consistent demand projections. Careers in finance may also offer flexibility for employees by allowing them to work remotely or in hybrid environments.

How much do people in finance actually make? ›

How much does a Finance Degree make? As of Apr 14, 2024, the average annual pay for the Finance Degree jobs category in the United States is $92,631 a year. Just in case you need a simple salary calculator, that works out to be approximately $44.53 an hour. This is the equivalent of $1,781/week or $7,719/month.

What is considered high finance? ›

High finance refers to complex financial transactions that involve a huge amount of money. It is often associated with unethical practices when lending, borrowing, or investing large amounts of money.

What is the highest paying job in a hedge fund? ›

What are Top 5 Best Paying Related Hedge Fund Jobs in the U.S.
Job TitleAnnual SalaryMonthly Pay
Hedge Fund Attorney$175,207$14,600
Cfo Hedge Fund$157,532$13,127
Private Equity Fund Controller$154,999$12,916
Hedge Fund General Counsel$151,643$12,636
1 more row

Which hedge funds pay the most? ›

In 2023, the five highest-paid hedge fund managers were Ken Griffin of Citadel, Izzy Englander of Millennium Management, Steve Cohen of Point72 Asset Management, David Tepper of Appaloosa Management, and James Simon of Renaissance Technologies.

How hard is it to get into a hedge fund? ›

Hedge funds employ some of the best-paid business professionals anywhere, but landing your first job in the industry is no cakewalk. Building a hedge fund career takes determination, networking stamina, and a fierce competitive streak. Here are some steps to help get you to that interview and then land that job.

What is the best job to make millions? ›

10 high-paying jobs
  • Computer network architect. ...
  • Air traffic controller. ...
  • Petroleum engineer. ...
  • Lawyer. ...
  • Physicist. ...
  • Computer and information systems manager. ...
  • Dentist. ...
  • Surgeon. National average salary: $297,626 per year Primary duties: Surgeons diagnose and treat patients using surgical and non-surgical interventions.
Apr 18, 2024

Is there a job that pays you 1 million dollars? ›

Business owner is the job or career that makes the most millionaires. A job in sales, such as real estate or SaaS (Software as a Service) can also make you a millionaire after several successful years. The investment field can also make you a millionaire. Certain surgeons can also become millionaires.

Can you make millions in banking? ›

If you're in banking, you want to stay until MD level. – Once you get to MD level, you are making low double-digit millions that is what the game is about. The guys who make the serious money are at the top, and it takes around 13 years to get there.

Can investment bankers make millions? ›

It is possible to become a millionaire as an investment banker, but it is not easy. Investment bankers typically earn salaries in the $200,000 to $700,000 range, with bonuses that can bring their total income up to several million dollars per year.

References

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Allyn Kozey

Last Updated:

Views: 5671

Rating: 4.2 / 5 (63 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Allyn Kozey

Birthday: 1993-12-21

Address: Suite 454 40343 Larson Union, Port Melia, TX 16164

Phone: +2456904400762

Job: Investor Administrator

Hobby: Sketching, Puzzles, Pet, Mountaineering, Skydiving, Dowsing, Sports

Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.