Posted By: Kaplan Financial Education
Updated: July 27, 2017 | Date: June 27, 2016
As someone interested in finance, you’ve probably heard the title Investment Banker thrown around as a possible career path for you after graduation. When you hear this, you probably nod and say something like, “Yeah, I’ve thought about that,” hoping the person you’re talking to doesn’t take the conversation any deeper. Or maybe you’ve told your parents or friends you’re planning to get into investment banking, but didn’t really have a solid answer to their inevitable follow-up question: “What is investment banking?”
Thinking about careers after college can be challenging for finance students. With little to no experience in a corporate environment, it’s sometimes difficult to bridge the mental gap between what you’re studying and how you might apply that knowledge later on in your professional life. Before you decide to pursue a career in investment banking, you probably need to better understand what investment banking is, and what investment bankers do. This article will simplify these concepts in a way you can understand, so you can make an informed decision about whether or not investment banking is right for you.
As you’ve probably figured out, an investment bank is not the same as a bank where you set up your checking and savings accounts—those are called retail banks. In the simplest terms, investment banks help corporations raise money. When a corporation wants to buy or sell something, they work with an investment banker to figure out how to invest or attain the funds they need to get it done. Investment bankers help their corporate clients secure funds in the capital markets, act as financial advisors, and occasionally help companies navigate mergers and acquisitions.
Let’s put the role of an investment banker into a real-world example that might hit close to home:
Jenny is a college student (the corporation). Jenny wants to buy a new TV set for her apartment. The TV she wants to buy is $500, and Jenny only has $200 in her checking account. Jenny knows her parents aren’t going to fund the purchase, since they just spent $300 to fix her car a month ago. One night while texting with her older brother, Jenny explains her situation to him. Her older brother (the investment banker in this scenario) has a suggestion. He tells Jenny to check under the couch cushions and the ashtray in her car, and try to scrape together another $50 to get closer to the cost of the television. But he also suggests Jenny talk to her five roommates (potential investors). Since the TV will be placed in the living room of their new apartment, he advises her to ask them to chip in (invest) $50 for her purchase. The roommates will also be able to use the TV since they helped pay for it (capital gains for their investment). But when the lease is up and they go their separate ways, Jenny will keep the TV.
Jenny’s brother played a critical role in helping her raise the money she needed to make her purchase. Without him, she would have never come up with the fundraising strategy he suggested. Similarly, investment bankers are highly valued in the corporate world. Without them, it would be very difficult for companies to get the money they need to serve their customers and clients, or develop a strong competitive position in their market. Now that you have a better understanding of what investment banking is, you’ll be better prepared for that uncomfortable question, “What are you going to do after graduation?”
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