It's bonus season! Turney Duff breaks down the anatomy of a $1 million bonus - and how to spend it.
It may be holiday-shopping season at the mall but on Wall Street, it's bonus season. The amount they'll receive has pretty much already been determined so there's only one thing left to do - figure out how to spend it.
The average bonus per employee in New York City's financial-services industry was about $164,000 last year according to a report from New York State Comptroller, but for traders, sales people and bankers, bonuses can hit seven figures.
By the time you get to million-dollar-bonus territory, you've grown accustomed to living a certain lifestyle. You upgrade your wardrobe and buy a car, maybe an apartment or rent a bigger place. The vacations you go on are more extravagant - instead of Hilton Head you jet over to the Greek Islands. Here's the breakdown:
So now you're left with just under a buck fifty. This is the fun part.
As you get older, sometimes the disposable income goes to other things like the spouse wants to move to a bigger house, the kids are about to go to college or you're having an affair with a girl in the intern program - all of which mean you need more money. But for a young, single person working on the Street, the disposable income is a chance to explore a hobby, participate in some lottery-ticket type of investments or just have some fun.
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And once the word gets out, the PowerPoint presentations start rolling in.
You'll hear endless pitches about the next NYC hotspot restaurant or bar they want you to invest in, which usually turns out to be a $10,000 cover charge. But hey, you get to say, "Let's go to my bar!" the next time you're in a group figuring out where to go. And very often, some guys and gals show up in your conference room disguised as Hollywood hoping you can put some money into their sure-fire independent film. But what you usually get is a few days on the set, VIP tickets to a film festival and screen credit.
When I was on Wall Street, I spent mine on everything from a fast-food chain to a rapper. None of these would be considered good investments from a monetary point of view:
- $10k - The dream: Producing Kaeson, an up-and-coming rapper from Brooklyn. The reality: He ended up getting five years in prison on a gun possession charge before we finished the album.
- $15k - The dream: Part ownership in a race horse. The reality: The horse had about ten last place finishes in his first year of racing. I'm not even sure what happened to him after the first season. He disappeared.
- $1m - The dream: Invested in fast-food chain Fatburger's its foray into New Jersey. The reality: The parent company filed for bankruptcy and economic collapse in 2008.
- $25k and $100k - The dream: Writing and producing my own short films. The reality: Nobody makes money producing short films. (In fact, the mere mention of it at my firm got me crucified.)
I've heard of disposable income going to all sorts of different types of investments and hobbies. On the Street, we like to call it diversification. If your employment, investments and source of income are all derived from the market - you want to branch out. Here are a few of the cooler and more successful investments I've heard of Wall Street guys making: car washes in New Jersey; a 2,000-square-foot wine cellar; Snappy Screen ( it's like a spray-tan machine, only for sun screen ); a professional lacrosse team; a fish store in Westhampton called Sherin's; and SongCircle which is a live performance community focused on helping indie musicians connect to fans and access exposure and revenue.
In today's iPhone -dependent world, there's a new trend developing - Wall Streeters are investing in apps.
From the stories I hear, I'd say one out of every three people who've received a seven-figure bonus in the past couple of years will tell you about a new application they just invested in. Typically it's in the $10k to $100k range and it's a new app that's going to revolutionize the world - or so they think.
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It usually starts off something like this, "It's going to be the next Instagram ," or "It's like Uber but for pets," during the fund-raising period. Then, eventually the app launches and they promote the hell out of it for weeks. And then few months go by and you ask, "Whatever happened to that APP you invested in?"
I've heard of some interesting apps that Wall Street guys have invested in:
Vhoto App - It turns your videos into great photos.
Flyer App - Mails NYC events to you weekly.
Sympler App - Allows you to mix + remix videos.
Vowch App - Helps you discover what people you follow like.
We've seen this movie before with the dot-com dreams 15 years ago. Typically, it's the private-equity guys who get rich off of a new industry boom. You don't hear about a trader's $25k investment allowing him or her to retire. But there's a reason it's called disposable income - you need to be able to lose it. It's tired and cliché, but there's never been more truth to it ... You can't shoot a moose from the lodge.
Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side," and is currently working on his second book, a Wall Street novel. He is also featured on the show, "The Filthy Rich Guide," which airs Wednesdays at 10pm ET on CNBC. Follow him on Twitter @turneyduff.