A wise man once said, “You have what you work with.”
This notion holds especially so in finance. Working with money is one of the best ways to accumulate it, as demonstrated by many successful financiers throughout history. Yet, because it is as hard as it is lucrative, it is not for anyone.
Read on to learn more about careers in finance, with all the pros and cons it involves.
What are Your Personal Finance Goals?
Personal finance goals vary between individuals. From short-term, like paying off a loan or saving for a vacation, to long-term milestones like buying a home or retiring early. Since a career choice dictates your income, it will have a significant influence on your goals.
Yet, working in finance for money’s sake is a path to wealth and unhappiness. Long hours, potential conflict in values, high competitiveness, lack of social life, pressure to perform — these are just some of the major difficulties you could face.
According to a 2010 Princeton study, people tend to feel happier the more money they make, up to the point of $75,000 per year. High income improves the evaluation of life but not emotional well-being.
An Overview of Finance Jobs
Finance is a rather broad field. It loves math wizards as much as creative social butterflies. And if you fancy, you can also be your own boss. Here are some of the most renowned career paths with accompanying entry roles.
Corporate finance: This area of finance deals with sources of funding, the capital structure of corporations and ways that optimize these decisions.
- What long-term investments should the company make?
- Where will the company get the long-term financing to pay for them?
- What will be the structure of this debt?
- How will the company manage its everyday finances?
Optimizing the use of capital is the main quest for corporate finance. Entry-level analyst jobs start at $40,000 and go up to $70,000 depending on the obligations and hours worked.
Investment banking: This area focuses on growing the company through capital raises on the public market as well as mergers and acquisitions. Investment banking is the premier field of finance, usually requiring a degree from a top university, securing an internship and then enduring soul-crushing, 60-hour workweeks as an associate. Yet, even junior positions regularly get $70,000 to $150,000 per year.
Venture capital: Also known as VC, this is a form of private equity financing oriented toward startups and emerging companies. VC is a numbers game, with many investments that fail, but the few that succeed might reach billions in valuation. Except for the capital, venture capitalists offer extensive networking to help companies grow. Entry-level positions such as analyst and junior associate deal with number crunching and portfolio research, with a starting salary of $60,000 per year.
Private equity: Private equity (PE) refers to investments in companies that are not publicly traded. In addition, PE funds can acquire public companies and take them private — effectively de-listing them. PE firms make money through management fees and a share of the capital gains generated by the fund. A career path is similar to that for VC, with entry-level as analysts and associates.
Hedge funds: Hedge funds raise capital from institutional or accredited investors and invest it in (usually liquid) financial assets. They focus on absolute returns using strategies that are unavailable to mutual funds like short-selling or derivatives. A typical entry-level role is a
research associate. It is a grunt-work role that involves reports, presentations and a lot of due diligence work for senior analysts. Sometimes it can include trading operations like booking traders and formulating performance reports. Salaries depend on the size of the fund, but entry-level roles should expect $60,000 per year and a discretionary bonus that can be up to 100%.
What is a Day Trader?
A day trader is a self-employed financial professional who speculates on the financial markets using personal capital. Day traders can be self-employed or trade with others’ capital (prop trading).
It can be lucrative, but it’s not for everyone. Here are some of the pros and cons of this career path.
Pros of Day Trading
- No boss: As a day trader, you are your boss. You dictate when and how much you work. While this entails a lot of responsibility, it provides a lot of freedom that few, if any other careers, match.
- Multiple trading strategies: Even in the intraday environment, there are numerous ways to trade. The best approach is one that suits your personality.
- Multiple markets: There is always an open market somewhere. Regardless of your time zone, money is always on the move. Opportunities to divert some of it into your pocket regularly arise throughout the day. Even when exchanges are closed on the weekend, the crypto market remains active.
- No overnight risk: Day trading will make you sleep soundly at night. Each day offers an opportunity to make the best of it. There is no stress from waking up to an unexpecting loss.
Cons of Day Trading
- Mentally taxing: Trading is not easy, especially in the dynamic, intraday environment. You are scratching ideas, flipping biases, babysitting the positions and second-guessing your choices. It requires mental toughness. While hedge funds and prop trading firms hire psychologists, as self-employed, you are on your own.
- May require high initial capital: If you day-trade stocks, you will fall under the day-trading margin requirements. The Financial Industry Regulatory Authority (FINRA) set this at $25,000 for any margin customer that day trades 4 or more times in 5 business days.
- Risk of overtrading: While a good trader can spot the opportunities, a great trader knows when to sit on their hands and do nothing. Losses are unavoidable in trading and chasing after the market increases the odds of overtrading, especially if you come to the market with a plan to speculate every single day.
- Dealing with market noise: Day trading relies on small, intraday moves. Although trend will always be your friend, there is a lot of market noise you have to deal with — mainly erratic and unpredictable price movement. (The only thing worse than being wrong is being right, but too early.)
Weighing Your Finance Career Options
Your finance career options will likely depend on these 3 things: education, networking and hard work.
While exceptions always exist, a vast majority of finance professionals have a degree. Many will have MBAs. Education is important and vital for meeting people as higher education provides excellent networking opportunities. The value of these tends to grow over the years as one key recommendation can be a difference that makes or breaks a deal.
Finally, be ready to work hard. Expect to put in the long hours, sometimes working on relatively trivial things. Grunt work is a rite of passage that few manage to avoid.
The most accurate scale to weigh your finance career options will be the one you hold in your hands. In other words, no amount of external counseling will be able to make that decision for you.
A Hard way to Make an Easy Living
It is no secret that working in finance can lead to unparalleled wealth. While top money managers proudly flaunt their success on social media, it might distract you from the survivorship bias. Often misunderstood, a sample selection bias occurs when you fail to consider observations that have ceased to exist. In other words, you usually see only those who have succeeded — those who survived.
Working in finance is lucrative, but it also can be ruthless and alienating. The key to making the decision lies in knowing yourself. If you have a knack for it, it might be a great choice. If you are only after the lifestyle, odds are you will crash and burn long before you make it to the top. In that case, you may be better off finding a different path.
As Hunter S. Thompson said, “You have to choose a path that lets your abilities function at maximum efficiency toward the gratification of your desires.”
Frequently Asked Questions
What are the best careers in finance?
Think of finance as an umbrella term that covers many careers. There are vast differences from traditional bank clerks to cryptocurrency analysts, but the below-mentioned are growing faster than average:
- Financial manager ($129,000 per year)
- Personal finance advisor ($87,000)
- Financial analyst ($81,000)
- Actuary ($102,000)
- Financial examiner ($81,000)
Do finance careers pay well?
Finance and insurance remain among the best-compensated sectors. According to Statista, in 2019, there were only 3 sectors ahead: Management, IT and Utilities. The average wage and salary accruals per full-time equivalent employee in the U.S. were $115,000 per year.
While there are oscillations in careers within finance, an employee with a bachelor’s degree in finance averages $64,000 per year.