Why I'm Not Super Interested in Money Management

There’s obviously a lot of money in finance. In making decisions about where to put people’s money. Wall Street bankers are infamous for making hundreds of thousands or millions of dollars a year in bonuses and/or commissions on deals. At first glance it seems like money management is a great place to look for opportunities to get rich.

But there’s a catch. A good manager can only expect to return like 5-8% on average[1]. So in order to make $1MM per year at a five percent rate of return, you need to be investing $20MM. And if you had $20MM, you would already be rich. So where is one to find that much capital to put on the line in order to make a lot of money? The way Wall Street does it is convince rich people to let them play with their money. “We know what we’re doing,” the bankers say. “Just let us use your money to make more money, and pay us with a percentage of it,” they say.

And sometimes those finance people are able to use other people’s money to make money, and those finance people get rich doing so. But just as often, if not more often, those finance people make decisions that result in returns that are worse than if the rich people had kept their money and just spread it across every company in the market.

Looking in from the outside, it seems to me that you can’t expect to consistently outperform the market. But that’s actually not my biggest problem with the idea of working in finance.

My biggest problem is the risk profile of the job. I don’t like the idea of making bets with millions of dollars of other people’s money. I think it would be a constant source of uncomfort in my life. I can deal with risk, and stress, and high stakes. But I prefer to do so with my own assets on the line. I can make sure to only bet with what is comfortable for me to lose.

And so the idea of money management as a career is not super interesting to me. It’s interesting, because I like data and I like money, and theoretically working at the intersection of those two things would be really cool. But the big picture is that without using lots of other people’s money to make bets, the expected value just isn’t there.

[1] This range isn’t based on any specific data, just my understanding from reading a lot about money management.

Matt Roll @mroll