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Wednesday, April 27, 2011

Understanding the individual US investor

The United States is the richest country on the planet, bar none. Invested assets in the US total in the tens of trillions of dollars. It is necessary to understand not simply who owns these assets, but more important, who makes the decisions about where and in what instruments these assets will be invested.

The US investors we will focus on are individuals, corporations (for profit and not-for-profit) and investment companies.

First, let's look at the individual US investor. This is the easy one. US individual investors as a group are generally unsophisticated when it comes to finances. Many are over-loaded with debt and cannot afford significant discretionary investments outside of saving for retirement. The bulk of individuals investments are thus in retirement accounts. These retirement investments are facilitated by mutual funds.

More sophisticated individuals with significant levels of assets available to invest typically hire an investment advisor and place their money into brokerage accounts. Investments typically consist of individual stock and bond securities, exotic instruments such as options, as well as mutual funds and hedge funds. They typically pay significant fees for the investment advice and often will self-direct their investments.

So, by and large, the decision about where to invest on behalf of individual investors is left to institutional money managers. And the individual US investor is not a viable target for wholesale promotion of investment opportunities in Cape Verde.

Of course there are some exceptions to this general observation. Cape Verdeans living in the US can and should be encouraged to pay attention to investment opportunities in their native country and to make investments into the Cape Verdean capital markets. Yet this is not a simple undertaking for such individuals and is not without tax reporting implications. And it is clearly a very small universe from which to attract investment dollars.

Perhaps the biggest opportunity with respect to the individual investor is to engage them as a tourist and have them spend dollars directly into the economy. This calls for the Cape Verde government and tourism agencies (private and public) to find better ways and avenue to promote the Cape Verde brand to the US vacationer.

I will talk more about the Tourism opportunities in a separate post.

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