Investment Banking vs Medicine: Which Will Make You Richer? Which Will Make You Happier?

Once in a while, during my free time, I would look up people from my past. They are high school classmates, college classmates, and childhood acquaintances. I’m not so concerned about who they’re paired up with, if they have kids, the cool places they’ve visited, or if they are doing well. And I don’t reach out to them to say, “What’s up.” I do not care much for trivialities. No, I look them up from a distance and find out what they have accomplished in life — mainly, what job they have and extrapolate that to their income. I want to find someone who is doing better than me, establish him as my competition, and motivate myself to make more money.

I know it’s superficial. But at least I am being honest.

I went to a business-oriented high school and college. So my prospective competitors are mainly in the business field. Most of them have not done anything that deviated from the average person. They got average jobs making average money. But there are a few that stood out.

One person is the CFO of a small company (with less than 50 employees). He got the job based on connections. Although the job title is impressive, I doubt the salary is as impressive.

One person is jumping from start-up to start-up, never staying more than a year. If she got equity, I doubt it is worth much if she is abandoning ship so quickly.

One person is the managing director for a Wall Street hedge fund. He was the smartest guy in my class and the only peer in the business world whom I would consider my competitor. He graduated from a target school (Ivy League) and climbed the ranks of investment banking right out college. He did all the right things and is probably the most successful peer in the business world.

Of course, I didn’t go up to him and ask him how much he makes. First, it is rude. Second, he doesn’t even know he’s my competitor.

So I did the next best thing. I did a bit of Googling to learn all I can about life on Wall Street and then compared that to life in medicine (based on my experience and on those around me).

Although it may seem hard to compare two different fields, my research have shown that they are quite comparable because both are very hierarchical and advance in similar timeframes. Assuming someone finishes undergraduate college, this is how he will progress (with investment banking on the left and medicine on the right):

  • analyst = medical student (4 years)
  • associate = resident (3 – 5 years)
  • vice president (VP) = new attending
  • managing director (MD) = experienced attending

The Parameters

A good comparison should be objective and not based on feelings. Therefore, it will be made based on the following parameters:

  • income per hour: the money earned per year (not including benefits) divided by the work hours per year
  • income longevity: the likelihood that you will have your job decades down the road
  • income mobility: the likelihood that you can find your job anywhere in the country
  • autonomy: the ability to do what you want, when you want
  • mastery: the ability to keep on getting better at what you’re doing
  • purpose: the meaning behind the work you do

The first half of the parameters orient around income because money is important. And no matter how much people delude themselves thinking they want to make a positive impact on the world, those going in Wall Street or medicine do it for the money.

The second half of the parameters orient around happiness. As per Daniel Pink’s book, Drive: The Surprising Truth About What Motivates Us, if your work contains autonomy, mastery, and purpose, you will be very satisfied with your work. The less autonomy, mastery, and purpose you have, the less satisfied you will be.

Income per Hour

The general consensus among those coming right out of college is that people go into Wall Street to make money (true) and that people go into medicine to help people (true). But because medicine helps people, by default they cannot make as much money as Wall Street (false).

Instead of sprouting generalities, let’s plug in some numbers.

Wall Street Income

According to Forbes, investment bankers make the following amount per year (base salary + bonus):

  • analyst – $114,000 to $165,600
  • associate – $159,900 to $209,700
  • VP – $372,500
  • MD – $409,000

I used the investment banking figures to give Wall Street the benefit of the doubt. Hedge fund and private equity make less.

Wall Street Hours

According to this article, investment banking can expect to work between 70 – 90 hours a week. Those on the bottom of the totem pole will work towards the 90-hours-per-week range and those on top will work towards the 70-hours-per-week range.

For argument’s sake, let’s say investment bankers work the following hours:

  • analyst – 90 hours per week
  • associate – 80 hours per week
  • VP – 75 hours per week
  • MD – 70 hours per week

Wall Street Income per Hour (Compared to Medicine)

In investment banking, do not assume you will get vacation. Again, I feel generous and will give Wall Street two weeks off. So a banker will work 50 weeks per year. Thus, after some basic math, Wall Street makes the following income per hour (rounded to the nearest dollar):

  • analyst – $25 to $37
  • associate – $40 to $52
  • VP – $99
  • MD – $117

I am very surprised at investment banking’s income per hour. It is low!

Someone that graduated at the top of his class from an Ivy League undergraduate school will come out making $25 -$37 per hour. However, the medical student is still paying tuition, so the analyst wins … for now.

After a few years of grunt work or after graduating from a prestigious school with an MBA, a banker will make $40 – $52 per hour. Less intelligent and less motivated people can make a similar amount (if not more) after graduating from optometry school or pharmacy school.

A medical resident will make around $50,000 a year, working between 40 – 100 hours a week (depending on the specialty and seniority). To simplify calculations, let’s say the resident will make $50,000 a year by working 70 hours a week for 48 weeks. He will get 4 weeks off. That translates to $15 per hour. But this is where the comparison gets a bit hazy. During the second or third year of residency, he can moonlight and make $50 – $200 per hour (depending on the specialty and the shortage of doctors in the area). You can make the argument that residents are capped by the 80-hour-per-week work limit, so a resident can only moonlight for a very limited amount of time. A resident who moonlights 10 hours a week for 48 weeks at $100 per hour will add $48,000 to his salary. That means he will make $26 per hour when factoring in the residency and moonlighting income. Nevertheless, the associate wins.

Once a doctor finishes residency, it is a whole different ball game. Because he was willing to go anywhere for work, one of my peers was offered $600,000 per year right out of residency. In my specialty, the baseline is $250,000 (with benefits) for 40 hours per week in an area that people want to live in. That is $125 per hour for a new attending. A new attending makes more per hour compared to a VP. Heck, it is even more than what an MD makes.

With a bit of experience and time (say in 5 years), a doctor’s reputation will grow. As a result, he will get better opportunities. Recruiters and the connections he’s made will throw him multiple job offers daily. His salary will go up to $200+ per hour. If the doctor was working managing director hours, he will be pulling $700,000 a year. This is for doctors who are employed. Depending on the type of job a doctor has, his employer may even pay for his housing and transportation. On the other side, doctors who have their own practices and businesses tend to make more.

The bulk of my mentors are pulling more than half a million a year — without the investment banking hours. Some have their own businesses. Some are plugged into a well-oiled medical system owned by someone else. All of them are well-connected, with families, and live life lavishly.

You can see doctor’s most recent compensation in Medscape’s Physician Compensation Report 2016. Even the lowest paying specialty, pediatrics, is more than $200,000 per year. Just remember the people who responded to the survey are hardly like the young and driven people in investment banking. A bunch of the respondents work only part-time. Some are elderly. Some are women with families. Some prefer to enjoy life, like surfing before going to work, than to amass as much money as possible. But the difference is that doctors have the option to work like crazy or not. Bankers do not.

The Wall Street kids can argue that money in the future is not worth as much as money today. And as an ex-finance guy, I agree. I am too lazy to conduct a discounted cash flow analysis of the two different fields. But in summary, for the first 8 years, Wall Street will pull ahead of medicine by $25 – $35 per hour plus medical tuition for the first 4 years. After residency, medicine will pull ahead of Wall Street by $30 to $80+ per hour.

For the long run, medicine wins.

Income Longevity

Take a 25 year old starting out in investment banking and a 25 year old starting out in medical school. Go forward until they are both 50 years old, which one will earn more? The answer will depend on a three factors: chance of success, job security, and barrier of entry.

Chance of Success

The above analysis assumes that everyone who enters as an analyst will become MD and that everyone who enters medical school will become an attending. But reality is much different than theory.

There isn’t actual data of how many analysts stay in investment banking and climbs up to MD. So the best source was through insider information.

According to the first source, roughly 20% of hedge fund analysts will become portfolio managers.

And according to the second source, 20% of VPs will make it to senior VPs and 20% of senior VPs will make it to MDs. Assuming that 50% of analysts make it to VP (which is already quite generous), that means 2% of analysts will become MD.

For argument’s sake, let’s say 20% of analysts will become MD.

What about medicine? Do only 20% of medical students become doctors? No.

Data shows that 95% of students in American medical schools will graduate. American medical graduates (AMG’s) are pretty much guaranteed residency spots, even if it is only in family medicine. I could not find data of those that finished residency, but based on what I have witnessed, about 90% of residents will finish residency.

That means about 86% of American medical students will finish residency and become attendings.

The end-game for American medical students is so much more secure and lucrative than analysts. However, if the medical student fails to get through residency, the risk and damage are so much greater due to the hefty tuition and low pay during residency. I know someone who failed out after 6 years in medical school. Life ruined forever.

Job Security

Think of it another way. Which field has more job security: investment banking or medicine?

The culture of finance is to maximize profits at all costs (as long as it is borne by another party). Look at the Great Recession. Who had to foot for the bailouts. Surely not the banks. If a banker’s expense is more than his revenue, the bank will make him redundant. There will be no farewell party. No loyalty.

One person summed up banking culture in the following way:

“Banking is a zero loyalty, zero job security environment. You come back from the gym and your neighbour’s desk is clear. In this environment, no one has any incentive to sound the alarm about wrongdoing.”

At the same time, the bankers have no loyalty to the banks.

In medicine, where profit is not the ultimate measuring stick (think community health clinics and VA hospitals), employers have more loyalty to doctors. The community has ties to the doctors. Thus, most doctors are not fired from jobs. They leave jobs voluntarily for greener pastures or for retirement.

Barrier of Entry

I’ve never heard of banker’s shortage. But I’ve heard of doctor’s shortage. Therefore, the law of economics dictates that the doctor’s job is more secure.

What does it take to work on Wall Street? Technically, not much. There aren’t any laws that say you must graduate with a certain degree or pass a set of national licensing exams to work on Wall Street. As long as someone is willing to hire you, you’re in.

There aren’t too many investment banks, and the banks are not hiring too many bankers. Thus the main barrier of entry is to get chosen by the banks. That barrier of entry is similar to many other jobs. Anyone can potentially get in as is.

However, medicine has a stringent barrier of entry that surpasses those of most professions. Thus, the main reason for the physician shortage is due to the high barrier of entry to become a doctor.

When I was in medical school, I complained every single day. I complained about the stupid hoops I had to jump through to get in, about the stupid hoops I had to jump through to graduate, and about serving in an indentured servitude known as residency. Aside from quitting, I did not have much control over my work life.

Looking back, everything I did was both a hazing process and a protective barrier. Unlike banking, you can’t just get hired as a doctor because some hospital or clinic chooses you. Legally, you must first become a license doctor before you can get hired to practice clinical medicine.

In the US, you must accomplish the following to become a licensed doctor after college:

  • do better than your peers in college (your GPA must reflect that you are among the top 5% of your class)
  • do better than your peers on the medical school entrance exam or MCAT
  • get into a medical school and not fail out
  • pass the 4 national licensing exams
  • get into a residency and not fail out

After years of jumping through hoops and being on your toes, then you will qualify for a medical license which legally allows you to practice medicine.

This barrier is very formidable because the opportunities are very good. Doctors from other countries all want to practice in the US. Many of these doctors are extremely smart and extremely experienced. Truth be told, some foreign doctors are more skilled than some American doctors. However, even extreme skills are no match for the law. A foreign doctor will have to jump through most of the same hoops as his less-skilled American peers jumped through — namely the 4 national licensing exams and medical residency.

Income Mobility

Investment banking jobs tend to concentrate in major cities. In the US, the place to go is New York City. You may find jobs in smaller cities (like Chicago), but the place to be is NYC. The jobs are not limited only to the US. You can work in major cities abroad, such as Tokyo, London, and Dubai. However, opportunities are very sparse outside of major cities. You need to be in the major financial districts to be in finance.

In medicine, you can work anywhere — major cities, suburbs, country side, and even in the middle of nowhere. Everyone needs a doctor. And because of the doctor’s shortage, there aren’t enough to go around. Since the 1990’s to 2015, the US population grew by more than 35%. However, over the same period, the amount of doctors for the specialty I have in mind only grew by a little more than 10%. It has gotten so bad that these doctors are offered telemedicine jobs that pay $125 per hour. In other words, you can work from home for 40 hours a week, get two weeks off a year, and still make $250,000. (It sounds like an internet marketing scam.)

You don’t have to be a brain surgeon to see why medicine has much more income mobility in the US than investment banking.

Couple high income with a low cost of living and you have a killer combination to live like a king —  a combination not possible for bankers.

“Ah ha,” you’ll say. “Investment bankers have more mobility globally.” To an extent, you are right. I don’t know as much about practicing medicine abroad, but from what I have heard and read, the hoops are not as rigorous. You don’t have to go through a foreign residency. Most likely, you’ll have to pass their licensing exams to get a medical license. And once you get the medical license, you can most likely practice anywhere in that country.

Autonomy

One of the key features to an awesome job is having control. If everything else is the same, a job that lets you choose your work hours is more satisfying than one that doesn’t. According to Cal Newport’s So Good They Can’t Ignore You, the primary way to have more control and to keep more control is to build up career capital. In other words, become so useful and so necessary to the success of your employer, you are irreplaceable. He cannot afford to lose you.

Essentially, it is about power. Your employer must need you more than you need him.

In both investment banking and medicine, you will not have much autonomy at the bottom of the totem pole. As an associate or analyst, the big monkeys are calling the shots. You’re doing the grunt work. If a PowerPoint needs to be tweaked for the client’s satisfaction, it will be your job to get it done on time. From personal experience, a medical student can also expect no autonomy. Teachers, residents, and attendings all have a vice-grip over your balls. A medical resident can expect a bit more autonomy. But generally, you still have no say over what you do, where you work, and the time you put in.

The situation changes drastically at the managing director and attending level.

The managing director has control over his underlings, but the client has control over him. Thus, it is doubtful he can choose his own schedule. He must adjust his schedule to suit the client’s needs. He must perform according to his client’s wishes. Investment banking clients are big fishes and sources of monetary windfalls. It is rare for clients to play by the managing director’s rules. This is similar to a Chinese manufacturer trying to do business with a major retailer like Walmart.

The attending has control over pretty much all aspects of his job. The medical students and residents do what you tell them to do. The nurses and techs facilitate your job as much as possible. Because there is such a shortage of doctors, you can customize your schedule much more than in investment banking — full-time, part-time, 8 AM to 5 PM only during Monday to Friday, 7 days on and 7 days off, and more. And if you have your own practice, when you work and how much you work is up to you.

Because each patient only makes up a small portion of a doctor’s yearly income, the doctor has much control over treatment methods and how he practices medicine. For example, some doctors will stop working with people who refuse vaccines! This is similar to a major retailer like Walmart doing business with the public.

At the end, medicine offers more autonomy than investment banking.

Mastery

Cal Newport said that the key to acquiring control over your work is to acquire work capital, which is a fancy way of saying skills or experience. He argues that the best say to do so is to treat your work as a craftsman treats his work. When you start out, your work sucks because you are inexperienced. But as you spend more time in deliberate practice, your work gets better and better. And after the 10,000 hour mark, you would be a master.

Both investment banking and medicine require a lot of time to the field. And it is safe to say by the time an analyst becomes managing director or a medical student becomes attending, he would have spent over 10,000 hours in the field. The good ones would have spent those hours in deliberate practice.

The skill-set to master in investment banking is different than that of medicine. In the former, you will strive for a mastery of financial modeling, Excel, PowerPoint, and presentation skills. In the later, you will strive for mastery of interviewing patients, diagnosing, treating, and documenting. Nevertheless, mastery of investment banking or of medicine is possible.

As long as you become more and more competent at work — no matter if it is in finance, medicine, or something else (like skateboarding) — mastery and its accompanying satisfaction are within grasp.

Purpose

Lastly, most religions would agree that happiness comes from living beyond yourself. The tireless mother with 9 children who had to hand-wash laundry would be happy to see her children raised up right. The disciplined father who worked 12 hours per day would be happy to see his family well-provided for, without any need unfulfilled.

Similarly, one of the 3 keys to happiness with your work is to benefit someone besides yourself.

In Wall Street, the mantra is “money, money, money.” Gordon Gekko expressed it so eloquently when he said, “Greed is good.” You can see the product of the careless greed during the Great Recession. Big banks received bailouts funded by taxpayers while citizen Joe lost his house to foreclosure. Many idealistic college graduates becomes jaded and unsatisfied after a few years in investment banking. The money alone is no longer so satisfying. The lack of time for yourself and the accompanying weight gain don’t help either.

There are a lot of self-delusions among hopeful medical school applicants that the main reason they want to be a doctor is to help people. The financial rewards are never mentioned, but tucked away in the back of the mind. But at the end of the day, when a doctor says that he helps people, it is true. And doctors, for the most part, are a benefit to society.

Medical training focuses on evidence-based data and best practices to maximize healing and to minimize harm to patients. Many of the standards in medicine are based on research. But advancing the field of medicine comes with a cost. If you do research, you are not seeing patients. And if you are not seeing patients, you are not making money. There are doctors whose passion is to explore the frontiers of medicine and to work in academia teaching the next generation of doctors. As a result, they are not making as much money as their private practice peers. They aren’t the ones pulling in $500,000+. But they may be the ones who fulfill the purpose component to the fullest — they are in the field for the love of it and for the love of humanity.

Winner per Parameter

Just as a recap to the article, here are the winners per category:

  • income per hour: finance for the first 8 years, then medicine afterwards
  • income longevity: medicine
  • income mobility: medicine
  • autonomy: medicine
  • mastery: tie
  • purpose: medicine

In all areas except for mastery, medicine is superior from the long-term point of view.

Conclusion

If a friend came up to me and asked if he should become an investment banker or a doctor, and if he was able to succeed in either field, I would tell him to choose medicine. Over the long-term, he will make more. He will have more options. And he will be happier.

Thus, I am no longer concerned about being beaten by my managing director peer. Even though he is smarter than me, my future is brighter just for being in the right field. I give myself pat on the back for surpassing most of my peers from high school and college. Truthfully, I had no cosmic plan of choosing the right field based on careful analysis. It was all divine intervention. Some may even call it luck.

But what a Pyrrhic victory because the competition never ends. Now, I shall set my sights on those who have gone into medicine. I will out-earn peers from the next stage of my life. And they wouldn’t even know we were competing.

You see the huge numbers that bankers and doctors make. But in reality, you don’t need to be in those fields to make good money. Anyone can get rich in any field. Here is the closest thing to a step-by-step manual for becoming rich: The Simple Guide to Becoming Rich: How to Create an F-You Money-Making Machine, Kick Your Soul-Crushing Job to the Curb, and Never Worry About Money Again.

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Comments

  1. Your numbers for banking are not even in the correct ball-park. Check the head hunter reports or look up salary information on WSO.

    Bottom line is that they are both very different jobs – if you love money IBD -> PE -> MBA -> PE -> ? is a tried and tested method to break 7 figures by the time you are 30 years old.

  2. Based on what you’ve said, I believe that medicine is the route to take if you want the highest percentage chnge of achieving both happiness and wealth. However, if you are a risk-taker, there are paths to take that guarantee even more wealth and happiness. Yes, the chance of becoming the CEO of a large company or bank or creating a successful startup is slim, but it’s these things that generate maximal wealth. Pretty much everyone on Forbes is not a doctor, because doctors, even surgeons, will never become billionaires. However, for non risk-takers, medicine is the most sure fire way to being in the top 1 percent. It all depends on whether you are willing to take risks and think outside the box to take advantage of capitalism.

  3. Cannot Disclose says:

    This article is fact less and pointless. I’m currently 27 and make around ~$300k as an associate at a private equity fund. Most of my friends in similar roles make slightly more. My VP makes $500k, principal makes $1,000,000 and partners make $1.5-$5M. Private equity and hedge fund both pay more than investment banking at higher levels, but investment banking is generally much higher than physicians.

    My girlfriend is a med school resident. She wants to become a dermatologist (one of the higher paying medical fields). At best she will make $600k (which is fantastic btw), but she will never clear that.

    Long story short: if you like business and dealing with sick people is not your thing, then go do finance at top firms and you’ll make more money than you need. If you enjoy helpful people, and not much of a math/business person, go to medicine and you will make enough money to give you a great life. If neither is your thing, do what you love and do it well, and money will follow.

    • Alex Ding says:

      Your comment is fact-less and pointless. Congrats on doing better than the average in your industry. But that does not mean the finance industry as a whole is doing as well.

      I know doctors making millions a year. Doesn’t prove that is the average for the medical industry.

  4. Amandeep Pasricha says:

    Hey I’m having trouble deciding between investment banking or medicine. Is it true that a large percentage of people will not make it to private equity and not make big bucks? Because I wanted to switch to finance, but the low job security is kind of scaring me lol.

    • Alex Ding says:

      Get exposure in both fields. Talk to those in the field. Do whichever you like more.

      • Amandeep Pasricha says:

        Hey Alex. Do you think that in the future, there won’t be a need for family physicians due to artiifical intelligience? Also, do you know family physicians that make a lot of money with their private practice. If I become a family doctor I will be 27, and I’d like to own a family practice to combine my love for business and medicine. Can you become a successful, highly paid physician if you are business minded?

        • Alex Ding says:

          AI won’t replace physicians for a long while. Too much resistance from politics to patient’s mistrust.

          Yes, if you mix business with medicine, you can do well.

  5. Cannot_Disclose says:

    I think Alex’s analysis is broad but fair. I have an internist friend who tells me the least someone in his position makes is $400K per year and its even more in private practice.

    I also have classmates and relatives who attended Princeton, Harvard, MIT, and Columbia, who worked on wall street for companies such as JP Morgan, Goldman and Merill Lynch. Two of them made on average of 1.2M per year over the cause of 10 years; the other two were laid off during the Internet bust, shortly after they were hired and never recovered.

    The point is, medicine is a sure way to make an honest and great living without fear of losing it all; if you are smart enough to get into the field. A career in financial can generate incredible wealth for a few, if first and foremost you have the personality to deal with people and second the intellect. Relying on intellect alone does not guarantee success in a finance career! The two friends who failed miserably on wall street were incredible smart but did not have the personality to be leaders.

    I advice my kids to go the med school and not business school because of their personalities; they are smart but do not have the killer instinct, which is one of the most important ingredients for success on wall street.

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