Wall Street Bonuses Hit Record Highs, and Everyday Investors Are Paying For Them


It is not often that I am shocked by something that happens on Wall Street. After all, I worked in the market for a couple of decades so was a party to much of the craziness, and certainly benefitted from it. The recent news on bonuses paid out in the first quarter of 2022, however, has even me gobsmacked, as we would say in England. According to the Office of the New York State Comptroller, the total in bonus pools for the period was $45 billion, with the average bonus payout for those three months coming in at $257,500. That is the average for “workers in the securities industry,” so presumably includes analysts and support staff, as well as traders….and that is for one quarter, not a full year.

That is a startling, some would say obscene number, especially given that many families are feeling the pinch right now as inflation and soaring fuel costs eat into their median household annual incomes of just under $80,000, and as a falling market has negatively impacted their on average $65,000 of retirement savings. 77% of America’s workforce of roughly 157 million have retirement accounts, giving around 120.89 million accounts. Divide that total bonus pool of $45 billion by that number and it suggests that each retirement saver, on average, contributed $375 to those bonuses. Again, that is for a quarter, so if bonuses were to remain at that level, it looks like we would all be paying Wall Street workers $1500 each year out of our own savings.

Okay, so that is a bit misleading, and obviously, it isn’t that simple. The bonus money wasn’t generated solely from trading in our retirement accounts so in reality we paid less than specifically to line the pockets of Wall Street employees. However, $45 billion is a massive amount of money and it came ultimately from us, small investors, and retail traders. If $45 billion is being paid out in bonuses, you can be pretty sure that there weren’t any big losses among Wall Street firms, and that money had to come from somewhere.

I don’t know about you, but whatever I contributed to that huge pool, I am unhappy that I contributed any amount at all. So, how can investors avoid contributing to massive bonuses to already wealthy individuals on Wall Street? The uncomfortable fact is that they can’t avoid it completely. They can, however, minimize it by employing a few simple strategies.

It is tempting in these days of zero commission trading to think we are not paying to trade, but of course we are. Our banks and brokerages receive payment for order flow, payment that wouldn’t make sense if that order flow weren’t guaranteed to make money for the trading houses that buy it. I don’t mind that, because both the broker I am utilizing and the traders who are executing the trade are providing a service, and they deserve to get paid for doing so. But that doesn’t mean that they should be making money just for holding my account. So, if your account is structured so as to pay a percentage of its size in fees regardless of activity levels or services used, ask questions, and consider moving to either a different account structure or a different bank or broker.

That will help but, given that you are going to pay fees in some way shape or form when you buy or sell anything, then logically, the less you buy and sell, the less you pay. By all means, identify opportunities and take advantage of them, but be aware that the thrill of trading in our accounts can be addictive, and in my years of working with individual traders, the most common mistake I have seen is overtrading. In day trading, that means not opening a position just because your day is beginning, and you feel you should. You should let the opportunities dictate the timing of trades, not the other way around. In longer-term investing it means not jumping in and buying every stock you read about, especially if that means selling something else to pay for it. And that applies even if it is me that is writing about a particular stock!

In fact, for long-term investing, the vast majority of your money shouldn’t be in individual stocks at all. It should be in simple, low-fee, index or maybe sector or style ETFs. Studies have consistently shown that keeping fees low is the single most important determinant of investing success over the years, and using straightforward ETFs or funds is the best way to do that.

By being aware of what fees you are paying and actively adopting strategies to minimize them, you will be able to reduce what you contribute to those oversized bonus pools. That will make you feel better about yourself but, more importantly, when the impact of reduced fees is compounded over decades, will make a significant difference to if and when you reach your retirement goals.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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