A sample text widget

Etiam pulvinar consectetur dolor sed malesuada. Ut convallis euismod dolor nec pretium. Nunc ut tristique massa.

Nam sodales mi vitae dolor ullamcorper et vulputate enim accumsan. Morbi orci magna, tincidunt vitae molestie nec, molestie at mi. Nulla nulla lorem, suscipit in posuere in, interdum non magna.

Choosing Careers: Follow Your Heart, but Know Where the Money Is

By Joel Redmond, CFP

What should I be when I grow up? Most of us remember asking ourselves this question at some point in our lives – and answering it.

Did what we told ourselves then match the careers we have now? Probably – for a lucky few. But for the rest of us, the answer is some combination of taking what we could find, adapting because of better pay or working conditions than our original self-styled profession provided, or settling due to circumstances beyond our control.

We Live in Decidedly Untraditional Times

All that glitters is not gold. Developments in the preeminent professions – traditionally thought to be law and medicine – have of late made us realize, more than ever, that we live in decidedly untraditional times. A recent report in the Chronicle of Higher Education stated that less than 2/3 of law school graduates were working in a position requiring them to pass the bar exam nine months after graduation.* This means that the unemployment rate for new lawyers is over 33% – the highest it’s ever been.

While less challenged than Juris Doctors, medical doctors have financial obstacles of their own to surmount. Among them are declining Medicare reimbursements, the more-than-precarious financial position of Medicaid, and an increasingly hostile environment for those professionals operating their own practices.

Faced with this, what are career seekers to do? One simple way to look at tenable careers is to see where the money is – to find the professions that have the highest profit margins. Let’s look at some of this information, provided by Morningstar and CFA Institute.** Here is a list of 39 industries and their returns on invested capital, less their weighted average costs of capital, from 2006 to 2008.

Industries with Positive ROIC – WACC:

Construction machinery 27% Beverage manufacturing 7%
Data networking 25% Oil & gas 6%
Money management 13% Household & personal products 5%
Data processing 13% Semiconductors 5%
Software 13% Machinery 5%
Oil & gas services 12% Discount stores 5%
Tobacco 11% Advertising 4%
Drugs 11% Publishing 3%
Clothing stores 10% Specialty retail 3%
Securities 9% Media conglomerates 3%
Steel/iron 8% Telecommunications services 3%
Medical equipment 7% Land transport 2%
Alcoholic drinks 7% Coal 2%
Aerospace & defense 7% Chemicals 1%

Industries with Negative ROIC – WACC:

Biotechnology -20% Paper -2%
Forestry/wood -5% Groceries -2%
Home building -5% Department stores -2%
Gold & silver -5% Building materials -2%
Air transport -4% Food manufacturing -1%
Auto parts -3%

Let’s look at the top three industries for a moment. According to these data, those seeking a career in a profitable industry could choose from construction equipment, data networking, and money management. What types of real-world jobs could there be in each of these fields? Well, a recent graduate might work as an earthmoving equipment salesperson for Caterpillar. She might work for a company like Cisco Systems, whose routers make up over 90% of the physical hardware connecting the Internet. Or she might become a financial planner.

Why Choose Financial Planning? 

Why might she choose this route, rather than the first two? One reason is the direct remuneration that occurs in money management (fees come directly from client assets), and the indirect remuneration that comes from seeing people make the right financial decisions. Another is the lack of capital-intensive outlay that financial services firms typically experience: there are far lower recurring fixed capital charges in a service business, like finance, than in manufacturing businesses like construction equipment and data networking.

One other reason our graduate might choose financial planning is the steadiness of these industry returns. Intuitively, it should be apparent that, in an era when margins are thinning in most industries, there are certain industries in which players have strong pricing power, and those in which they have weaker pricing power. Some of the former include investment banking/M & A, asset management, and private banking. Because clients typically learn to rely thoroughly on their advisers in these fields, they are less price-sensitive than in other fields. This price insensitivity leads to profits that are not only higher than those of most other industries, but sustainably so.

Choosing Careers

Many today are still asking themselves what they want to be when they grow up. The only right answer is what they truly dream of – but the tools listed here can’t hurt, either. Woodward and Bernstein were told to follow the money. Following the money isn’t always the answer – but it never hurts to know where it is.


**Introduction to Industry and Company Analysis, by Patrick W. Dorsey, CFA, Anthony M. Fiore, CFA, and Ian Rossa O’Reilly, CFA.

2 comments to Choosing Careers: Follow Your Heart, but Know Where the Money Is

  • swati shevade

    I thoroughly enjoyed reading this article and found it very interesting. I think reasoning given by you is very convincing.

  • Badrish


    It is really awesome how you have explained in way top down approach.

    Good way to create a story and we can adopt in explaining financial planning services.


Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>