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Finance as a career option

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This page evaluates finance as a career option. It provides information that can help you answer a question of the form Should I pursue a career in finance?
See all pages evaluating particular career options|See our main career selection pages: factors to consider, ...

Finance is a popular career option amongst graduates from elite universities: with about 20% of Harvard, Princeton and Yale graduates getting jobs in the field. Economist and New York Times columnist Tyler Cowen has suggested that people with high intelligence have a significant edge in the field.

A version of this page was posted as a LessWrong post by Jonah Sinick. The comments there are also worth reading.

If you're interested in learning more, be sure to check out the external links at the bottom of the page.

Types of finance jobs

Finance has a number of sectors. Careers in Finance breaks finance down into Commercial Banking, Corporate Finance, Financial Planning, Hedge Funds, Insurance, Investment Banking, Money Management, Private Equity and Real Estate. The nature of jobs in finance varies considerably from sector to sector.

Our remarks below concern jobs in higher paying jobs in finance, such as jobs in investment banking, private equity and at hedge funds. It may be very difficult to get these jobs. See for example this comment.

Compensation

Salaries in investment banking, private equity and hedge funds can be very high:

  • Careers in Finance reports that somebody with ~5 years of experience at an investment bank typically makes ~$450K/year.
  • In 2006, Richard Rusczyk (formerly an employee at hedge fund DE Shaw) wrote "While it's not expected that you'll make a million dollars in year 5, neither is it impossible. If you're not making at least middle six-digits by year 6-8 as a quant in a hedge fund, then something has gone very wrong for you."
  • Stock market trader Joe Mela wrote that "If you’re good at [being a trader], you can make millions 5 years down the line."
  • Some of the most wealthy people in the world, such as George Soros (net worth $23 billion) and James Simons (net worth 11.7 billion) made their money in these fields.

The high income is moderated by marginal taxes being high at that level, as well as the high cost of living in New York city (where most finance firms are).

Work-life balance

The high pay in investment banking should be viewed in the context of the grueling hours on the job. According to IBankingFAQ,

Analysts can routinely expect to work 90-100 hours per week or even more. A typical work day during the week might be 10:00 am until 2:00 am. Analysts will also typically work both days on the weekend. During a particularly busy time [...] it is not uncommon for Analysts to work all night...

According to a highly upvoted Quora response:

Your physical health will almost certainly suffer. The extent to which it suffers depends on how careful you are with your diet, whether you make time to exercise, how much sleep you get, and how well or poorly you deal with stress. Most people have at least partial burnouts.

The quotations are referring to the hours of work in entry level positions. We have not been able to find substantive information on number of hours that more senior employees work per week. Our impression is that the number is smaller, but not dramatically so.

The number of hours per week that employees at hedge funds and proprietary trading firms appear to be smaller. In 2006, Richard Rusczyk (formerly an employee at hedge fund DE Shaw) wrote:

I would say the average work week at places like Shaw or Jane Street is closer to 55 hours, maybe lower (unless things have changed dramatically).

This is in consonance with what we've heard from two other acquaintances who have worked at a hedge funds and proprietary trading firms.

Job security

Job security in the more lucrative sectors of finance may be poor. Carl Shulman wrote:

While a physician will usually remain a physician throughout her career, lucrative jobs in investment banking and management consulting often come with “up or out” career paths. Either one is promoted “up,” with incomes growing exponentially, as one can see in these links for banks and consultancies, or one is fired “out” and must seek work at a lesser firm or leave the industry. Since most employees will not be around for very long, one must take into account one’s “exit options” in deciding whether to enter.

The degree to which job security is poor is a major factor in determining how promising finance is as a career for a given person. We have not been able to find good information on this.

Culture

Some people have characterized finance as having a very abrasive culture. Others have disputed this characterization. The culture of finance firms probably varies substantially from sector to sector and firm to firm.

  • Liar's Poker by Michael Lewis gives "an unflattering portrayal of Wall Street traders and salesmen, their personalities, their beliefs, and their work practices." The book reports on the situation in the 1980's, and may be out of date.
  • Former DE Shaw employee Cathy O'Neil gives an unflattering characterization of the culture at DE Shaw at her blog. This characterization has been disputed.
  • Trader Joe Mela wrote "As a rule, traders are highly switched-on, pleasant to talk to, and are great people to learn from. I do not think trading is the optimal career path if you’re trying to meet highly altruistic people, but the Gordon Gekko stereotype is pretty far from the truth."

Social value

Further information: social value of finance

External Links