I've worked as a trader/quant/developer for coming up on 12 years. Joe Mela's post at 80,000 hours basically matches my experience. I'll also point out that a large portion of trading firms are in Chicago, where the cost of living is really not too bad.
Glassdoor has Goldman Sachs salaries topping out at around $350K for VP-level people, although that doesn't seem to include bonuses, which seem to be about a 1.6 multiplier on your salary at the VP level (and are also taxed a lot more heavily, I hear).
I have no idea why the Glassdoor data is so much more pessimistic than your other citations. Off-topic, but I heard from a Google employee that $500K-ish salaries are within reach for driven managers at Google... and the senior product manager salary data from Glassdoor looks similar to the data for GS VPs.
I recently interviewed at D. E. Shaw and had a chance to meet many of their team members. I got a very different impression from Cathy O'Neil's post, which seemed pretty stereotyped and xenophobic. Maybe that would change if I worked there, but that post sent up some red flags in terms of tone.
High frequency trading is a candidate for a sector of finance that makes money through buying and selling stocks a little bit faster than others, without contributing much social value.
I think that this is a bit of a misunderstanding of what HFT does. A lot of HFT firms spend significant resources trying to be fast, but they do that because a lot of other HFT firms are also spending significant resources to be fast, and are pursuing very similar strategies. Speed is all about competing with the other trading firms, not about being quicker than end users...
I generally agree with the points in this post but I have to point out that examples using I-banking jobs is a prime example of something being over-hyped and glamorized by movies, that don't actually exist in reasonable quantities to even be relevant.
The vast majority of all finance jobs at investment banks are called operations, this includes accounting, settlements, compliance, support, etc...a very small percent is front office sales, and then there is what every single starry-eyed-naive-finance-senior in college aspires to be – an I-banker (rolls eye...
I don't see a discussion of selection effect on expected salary. Finance is known for having a high washout rate with a winner-take-all structure.
Edit: I spoke with Colby Davis (LWer) who is a CFA, works for a private wealth management firm, and seems to have a pretty good idea about the job market having just spent a bunch of time exploring his options. According to him, finance works like law. You have the people coming out of the top few schools doing on average very well, and then a long tail of people not doing that well. So potentially not worth it u...
This may or may not be relevant in this specific discussion, but I do think there is a serious problem in the US where an unbalanced tax code (with a capital gains tax much lower then the income tax) creates incentives for more intelligent people to go into investments as a career (instead of science, engineering, ect) then might be optimal for us as a society.
I think that on the whole, investment probably does have more societal benefits then societal costs, but I also think that we're spending disproportionately too many resources on that section of our economy that could have greater benefits elsewhere because of the distortion effects of the current tax code.
Jonah, what are your thoughts on the points I brought up in my critique of effective altruism, which while not specifically finance-related, argue against the finance / earning-to-give route?
This article needs a section on personal risks of choosing this career: failure modes, with probability and consequences.
It's simply the case that the vast majority of even very smart people aren't making "middle 6 figures" in their late 20s. Having some explanation of why not would add a lot of credibility.
Excellent, although you need to take taxes into account, especially if you will be living in New York City.
Another compensation-related consideration: in many cases, base salaries are (very nice but) not stratospheric, and the real money is in the annual bonuses. Large but irregular income may be less valuable than lower-on-average but more regular income, e.g. because it makes planning more difficult and because it leads to paying more tax.
Cultural consequence: A sense of competing with one's colleagues for bonuses may make for a more stressful atmosphere. (In some sense this sort of competition is present in all companies, but it is made more obvious by the b...
The workweeks are not about earning the high pay - at that level of time commitment, performance at any task will suffer heavily - The kind of finance we are considering here is institutionally set up to impose immense sunk costs on new entrants and to isolate them from their existing social ties by monopolizing time so that those new entrants become willing to undertake actions that they would in the normal course of their lives have balked at for reasons of morals, decency or basic sanity. The vampire squid is not looking to gift you with the means to d...
The correlation between income and social value
Your explanation on the above conflicts the experience I've had with the finance sectors who have caused the 2008 Financial Crisis and bankers' fiesta with bailouts unless I'm misunderstanding the definition of 'social value'. I believe the career still is a good option for those earning to give because of the exceptional amount of money people can make, which more than sets off against the socially widespread negative view for financiers if the use of earnings aims at saving the world.
As a part of our research for Cognito Mentoring, Vipul Naik and I compiled a draft of a page on finance as a career option. Because some Less Wrongers are planning on earning to give and finance is a commonly considered career option for those who are earning to give, I thought that it might be of interest to the Less Wrong community. See also 80,000 Hours' blog posts on finance as a career.
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.
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.
Salaries in investment banking, private equity and hedge funds can be very high:
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 in the more lucrative sectors of finance may be poor. At the 80,000 Hours blog, 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.
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.
Actors in finance produce both social value and social disvalue, and it seems difficult to make a general statement about whether the typical worker at an investment bank (for example) does more good or harm. The situation probably varies from sector to sector of finance. We give some relevant considerations below.
The correlation between income and social value
In general, there's a correlation between income and social value contributed. The fact that the earnings of people who work in finance are high raises the possibility that workers in finance contribute high social value.
People and organizations sometimes have a temporary need for money to accomplish their goals, and people and organizations are sometimes willing to lend money for a fee. Actors in finance who enable these transactions benefit both the borrower and the lender, and are paid accordingly. Similarly, actors in finance who lend money themselves benefit the borrowers and are paid accordingly. The proportion of activity in finance that fits this basic model is unclear. Many of the transactions in finance are many steps removed from the basic activity of enabling borrowers and lenders to connect. Some of these transactions indirectly enable borrowers and lenders to connect, and others don't. It can be very difficult to tell which are which from the outside.
Unproductively increasing the efficiency of the market
If a company is looking for an investor and nobody is willing to invest, this is bad for the company. If the company is deserving of an investment, you spot this, and nobody is willing to invest, then you can benefit the company and make a profit by investing.
But suppose there are actors who are willing to invest in the company, and you invest in the company a tiny bit faster than the other actors. The company doesn't benefit much from this, because it would have gotten an investment anyway. The other people who would have invested are harmed by this, because they can't make a profit. So the social value that you contribute is much smaller than it would have been if nobody had been willing to invest within the same rough timeframe.
Some activity in finance takes this form. High frequency trading is a candidate for a sector of finance that makes money through buying and selling stocks a little bit faster than others, without contributing much social value. The transactions that high frequency trading firms make occur on a time scale of a fraction of a second, and it's unclear that enabling people to buy or sell a stock a fraction of a second faster helps them to an appreciable degree, even after taking into account the number of people involved.
Pushing off tail risk onto the government
Some firms in finance are "too big to fail" in the sense that if they were to go bankrupt, the whole economy would suffer enormously, because of their interconnectedness. When they're in danger of bankruptcy, the government will often lend or give them money to keep them afloat. Because the firms are aware that they'll likely be supported by the government in the event that they make bad investments, they'll sometimes make very risky investments, that have high upside to them if they pan out well, with the expectation that if they pan out poorly, the government will cover their losses. Such actors effectively make their money at the expense of the taxpayers, thereby contributing negative social value.
Not all actors in finance behave in this way.
Causing financial crises
As above, sometimes "too big to fail" firms will take risks that they're not able to handle, with the expectation that the government will cover their losses. If they're in danger of bankruptcy and the government ''doesn't'' cover their losses, this can precipitate a financial crisis. In particular, the collapse of Lehman Brothers is thought to have played a major role in the 2008 financial crisis. In this way, actors in finance may be able to cause damage far out of proportion with their earnings.
As above, not all actors in finance behave in this way.
Some people have raised the possibility that high-frequency trading could cause a financial crisis on account of increasing the stock market's volatility, but others have disputed it, or even claimed that high-frequency trading reduces the stock market's volatility.
Earning to give
Because the earnings are high in finance, finance has been highlighted as a promising career track for people who want to earn to give large amounts of money to charities. 80,000 Hours Executive Director Ben Todd has argued that the harm one might do in finance is small relative to the good that one can do by donating 50+% of one's income to highly effective charities.