The public perceptions about people with a finance degree and the realities of finance careers can sometimes be vastly different. Even students studying for a finance major might not realize what going into finance really entails. Then once you have the degree, you might wonder if a professional certification like the CFA or an MBA makes sense.
I don’t have all of the answers, but hopefully I can point you in the right direction so that you can solve them for yourself.
One thing is certain about finance—it’s not what “they” think, and a finance degree can take you in a million different ways. Luckily, these days there’s a ton of great resources to help you build a solid financial career path such as r/financialcareers and Wall Street Oasis.
I don’t know how you got interested in finance in the first place. Maybe you really love numbers. Maybe the business world fascinates you. Maybe you’re an A-type personality who loves the thrill of working hard and seeing major results. Maybe you’re just drawn to the glitz and the glam. Maybe you like FinMemes. Maybe you just love money, and want more of it.
It we can be really honest with ourselves, we’d all like a little more money—and a great finance career can be a way to get there.
Here’s the thing. Studying for a finance degree and learning how to build wealth are actually 2 completely different things. Luckily for those with a finance degree (and especially a finance certification like the CFA), what you learn from studying about finance can also transfer over and help you a lot in building wealth. This is unique to finance that’s not a characteristic in other fields—a doctor doesn’t get to study about assets and ways to value them while in medical school, and so he might not put two-and-two together that he needs to build personal assets with that large income of his.
But here’s the bad thing about finance. As you take that finance degree and start towards a career path, you will get really good at your slice of that world (whether that’s Private Equity, Investment Banking, M&A, etc) but that won’t necessarily translate to building wealth.
Just as there are many heirs who blow their inheritance and squander family wealth, as someone working in finance you could take that gift of a great income and completely waste it in your best working years, and sometimes… it’s not even your fault.
The Truth About Finance Degrees
Truth of the matter is that most finance degrees or certifications won’t teach you about the personal side of finance and building wealth, it’s kind of expected to be common sense.
But while a finance degree might get you into Wall Street, it might not lead to you personally using Wall Street in the best ways to get yourself rich and not just your bosses. Just like the businesses on Wall Street buy more assets to earn higher profits, you need to buy assets to build income streams for yourself.
Here’s what you should know about building wealth.
Contrary to public perception (again), it’s not about hitting the jackpot on a penny stock or day trading yourself to death like a wolf of Wall Street. While people certainly do build fortunes overnight on Wall Street, most successful and financially comfortable people build their wealth slowly, over time.
And this is because of compound interest. As someone with a finance degree, this is something you should absolutely learn—especially if you’re just starting out and studying with a finance major at the moment.
The way compound interest works is that it’s all about money making more money. On Wall Street, this is the closest thing you’ll get to a free lunch.
Speaking of lunch, imagine you owned a chicken farm.
We all know that chickens can lay eggs. Let’s say that a chicken is worth $10. If you have 52 chickens that can all lay 1 egg per week (they are super chickens for our example), then by the end of 52 weeks you’d have 2704 chickens (52 weeks times 52 chickens).
In the 2nd year of our superhero mutant chicken farm, we’d have 2704 chickens going at full capacity. With 2704 chickens pumping out 1 chicken per week, at the end of those 52 weeks we’d have 140,608 chickens. You can see how the amount is ballooning now—that’s compound interest.
Now I used an extreme example to make a point.
In real life, and especially as it relates to getting filthy rich and building wealth, the money you can make from investments isn’t as extreme and takes a much longer time.
But… and here’s what’s key… it can still make a significant impact to your wealth because it balloons in the exact same way.
Building Wealth on Wall Street
Let’s take today’s stock market as an example.
Did you know that the U.S. stock market has been averaging over 10% per year for many decades? (since the early 1900s). And that’s just on average, some companies like Apple have returned much, much more for shareholders.
If we take a simple return like 10% per year and apply it to personal investments, we can get a sense of just how rich you can get with that finance degree.
Take the median income of a finance professional who just graduated. As of 2019, that was $41,600. Now someone who just graduated with a finance degree has a very long time to let his wealth build, so we can watch that ballooning happen at greater and greater lengths. Say we take that income and invest 15% of it per year and watch it earn 10% per year in the stock market, and you invest it for 40 years.
Using a compound interest calculator to do the math for us (we like numbers but not making mundane calculations), that small $3,467 per year ($520 per month) turns into $2,761,777. That’s the power of compound interest with time on your side.
But let’s say we’re a little impatient and want to live the good life sooner.
Well that’s okay—someone investing $520 per month for just 20 years will still have $ $357,396 at just 10% per year market returns. It’s the fact that your money makes money and that new money can make you more money with the old money that makes you richer and richer.
Here’s were we can get really excited about you having that finance degree. If you are learning about any sort of valuation techniques, the types of formulas and metrics that are used in the business world to analyze financial results, you can use that same knowledge to try for higher returns in the stock market.
CFA and Investing in the Stock Market
Chances are, you already find this stuff interesting since you decided to pursue a finance degree. Why not try and build personal assets and get part ownership of some of the businesses around you (through the stock market), and use your increasing education and experience guide you through this process?
For those of you getting an advanced finance certification like the CFA, it’s even better because you are learning exactly how to make financial and valuation models that can be used to make stock picks and build personal income streams.
Like I said, the problem is that once you’re on Wall Street it’s supposed to be common sense that you should know what to do with your money. Unfortunately that’s not really the case, you have to go out and learn on your own.
Luckily for you, you have some distinct advantages over “normal” people, because there can be a lot of crossover between what you’ve already learned while getting your finance degree and what you’ll need to learn to invest in the stock market.
I highly encourage you to at least learn the basics about the stock market.
Most people might just scratch the surface (if even at all), and never harness its true power. Personally I love digging into balance sheets and the income statement and find a thrill in using this knowledge to try and pick stocks.
However, I’ve also learned enough from top fund managers like Warren Buffett that the key to success in the stock market is patience and letting your investments compound over time—and that it won’t happen consistently and reliably as any get rich scheme.
But even a small discrepancy in results, a simple 1 or 2% outperformance over the market average, can lead to massive differences in wealth (again because of compound interest).
If I were to take the same example we used above with the entry level worker with a finance degree, and instead of 10% per year we earned 12% per year, that money at the end of our 40 year investing period would balloon to $4,786,650 instead of $2,761,777, over just a 2% difference in annual return!
I really think that some of the “simple” and basic concepts around the stock market like the P/E and other related ratios can help investors on their quest to building wealth and income streams, because that’s how it’s been done in the past and that’s how it will be done in the future.
Just because it’s not taught in standard finance curriculum and just because you won’t learn it studying for a finance degree doesn’t mean it can’t help you on your journey to financial freedom and wealth.
Take that education just one step further and learn about the concepts behind investing and personal finance, and do it while you’re young so you can get your compound interest snowball moving immediately.
If you do want to put that finance degree and high income to its best work and do agree with me, then I can help you with the next step.
As a self-taught investor, I took the time to teach myself about stock market basics and then recorded it into a free ebook to help others learn the same. The ebook is called 7 Steps to Understanding the Stock Market, and you can download it for free at this link.
I’m rooting for you because you already have (or are studying for) a finance degree and are in such an optimal position to build wealth and income streams.
You’re probably find the information fascinating, the journey thrilling, and the results bountiful. At least I’m hoping you will, because I have so far.
Some things they just don’t teach in schools, but it doesn’t mean we shouldn’t learn it.