VOICES: Investment Banker Who Avoids The Stock Market
Rahul is a 1st-year associate in investment banking (IB). He feels lucky that his education opened so many doors for him and has maintained a frugal lifestyle despite having the means to live more lavishly.
Graduating with debt motivated him to take a job the summer before he started IB and skip a post-graduate vacation. He doesn't regret making this decision at all because he is completely debt free now. He does admit to getting a bit over-eager when he invested his first bonus in the stock market. Passive investing wasn't as gratifying as he thought it would be; the market swings made him nauseous (Covid hasn't helped either). Now, he mostly saves in cash in hopes of buying a multi-family home within the next year.
We appreciate Rahul's money consciousness and the strategies he's pursued to live below his means and pay off his debt!
*Name is altered to protect identity.
INTERVIEW WITH RAHUL:
How has your career gone so far? How do you think about your future?
I started as an investment banking analyst when I was 22. My current plan is to continue in IB through my associate/VP years and then reevaluate - be it continue in banking, go into asset management or become an entrepreneur. I’m relatively risk averse so having job security is a definite plus for me.
That being said, I still learn a lot every day, and I believe that if I were to leave my job now, I might be missing out on all that there still is for me to learn in my current role. I don’t want to be too hasty in switching jobs, especially if I enjoy what I’m doing now; plus, despite the stigma against it in the finance community, having a longer-term career trajectory in IB is very viable and attractive for those who enjoy the work.
Have you ever negotiated your salary?
I haven’t. Haven’t felt the need to since I knew what my salary would be for the next few years upon joining my firm, and I feel like I’m being generously paid as it is.
How do you manage your money?
- Personal Spending: I “pay” myself ~$3k per month. I’ve realized over time that this is more than sufficient for my rent and other expenses, and my rent is a bit higher than I’d like it to be.
- Retirement: I max out my 401k each year (employer has a $1k match) and don’t contribute to an IRA, because I expect to be in a lower tax bracket in retirement than I currently am now (and I cannot contribute to a Roth IRA with my salary).
- Savings: I put the rest into a high yield savings account (I use Marcus).
- Investing: After investing my first bonus in the stock market, I realized that passive investing wasn’t as gratifying to me as I thought it would be - the market swings would make me nauseous and the COVID crisis made that worse (for my own peace of mind, I sold out of my individual stock holdings and put it all in the SPY index fund). I’ve been saving my cash over the last 2 years with the hopes of buying a multi-family home within the next year - my grandma has one in Brooklyn and it provides a steady income stream in retirement. Depending on what I’d buy, the tenant would end up paying most of the mortgage for me. My biggest pet peeve each month is writing out my rent check since that could instead go toward building equity in a property that I own. My sister has been helping me do research on neighborhoods so I’m excited to begin house hunting in the new year!
How did you end-up investing in the stock market?
When I got my bonus (2018), the market was doing well. I already had an emergency fund and a pretty high savings rate, and wanted to take advantage of the market trends. By then I was fairly well-versed in investing and what my options were; I read equity research reports and decided to invest in companies that I thought showed promise and aligned with my values.
How have you managed your student-debt since leaving college? Did debt factor into your career decision?
I was encouraged to take the job in finance because I knew I’d be graduating with $25k in student loans and I wanted to start saving as much for my retirement as soon as possible (to take advantage of compound interest). I’m lucky that my education opened doors to make that happen.
I wanted to make sure that I paid off my student loans before their grace period ended AND maxed out my 401k before the end of the year so that I could take full advantage of those benefits. To help achieve those goals, I got a summer job between graduating and starting IB and forewent a post-graduation vacation. That wasn’t enough, considering I needed to save up too for a security deposit, so I lived very frugally my first few months of working in IB to achieve those goals.
I think the best advice is to strip out the inessential - if you have debt, there are little things you can do to increase savings, like cancelling your Netflix and not getting a Starbucks coffee in the morning (not to mention avoiding larger expenses such as a gym, travel, going to bars/restaurants, etc.). Those small steps add up pretty quickly.
Even though I was successful in my goals, I continued that lifestyle so that it would become a habit to live well within my means in case I was ever faced with a salary reduction, either through my own doing (career change) or not (lay-off). Truthfully, seeing my mom get laid off during the 2008 recession was an eye opener for me so I learned early on the necessity of saving and living within your means; her lay-off was completely unexpected but luckily she had been financially prudent and was able to get through it without a drastic lifestyle change.
Why was it so important for you to start saving for retirement as soon as possible?
I saw (or I guess, am seeing) the benefits of contributing as much as possible early on first-hand. My mom was very diligent about maximizing her retirement savings when she was my age, so by the time she was laid off in 2008, she had built a nice nest egg for herself. As she reaches retirement age, she knows that she’ll be able to retire comfortably because of her diligent saving early on, despite the unplanned longer-term pause on her saving that she was forced into starting in 2008.
Being diligent about her savings early on enabled her to pivot to a more rewarding but lower paying job after being laid off. She’s happy that she had that option instead of needing to find another high-stress job. I’m risk averse like her, and I value having that security. So I take advantage of compound interest and try to save as much as I can now because I can’t predict the future. If something unforeseen were to happen in my career, I can have the same flexibility that she did.
How have you been learning about real estate investing?
I’ve been learning from friends and family who have started to invest in real estate, but I’ve also been leaning a lot on articles and anecdotes that are available online. Luckily I have some time until I want to purchase real estate, so since I am interested in purchasing a multi-family home, I am currently in the process of researching different neighborhoods in and around NYC that are renter- and commuter-friendly.
Is the $3000 you "pay" yourself each month your budget? Can you tell us more about your personal spending? You said your rent is higher than you'd like it to be?
Yes, that is my budget. I look at my fixed expenses each month - rent, cell phone bill, utilities - and then give myself a discretionary amount to spend for going out to eat, entertainment, etc. Truthfully, the amount is purely arbitrary, and I’m saving more than I’m spending each month. However, I don’t want to ever fall into the habit of having an unsustainable and lavish lifestyle in the event I stop making my current salary. This could happen either through my own doing, such as a career change, or due to other uncontrollable forces, such as a lay-off. To me, that’s actually one reason why investing in a multi-family property is so appealing to me, because of the fairly predictable monthly rent I’d be collecting that can cushion a sudden decrease in income.
Despite the neighborhood and amenities of my apartment building, I think that anyone paying $4,000 per month to share a <700 sq. ft. apartment with another person is ridiculous. I certainly felt that way then I signed my lease, but since I knew I would work long hours, I wanted to be within walking distance from my office. I was on a time crunch and was left with few options. This meant living in a neighborhood on the more expensive side, which was a trade-off I was willing to make.
I have never been a fan of paying rent when instead I could be paying off a mortgage and simultaneously building equity using that money. That has encouraged me to save as much as possible for a down payment. Now that I no longer need to be within walking distance from my office due to the COVID-19 crisis, I am planning on moving to a much less expensive apartment (probably outside of Manhattan) unless my landlord will lower my rent substantially, which seems unlikely as of today.