Who Are The Retail Investor Crowd?

Crowd finance is about to become a major niche market in the financial ecosystem, accounting for $10 trillion of global value. For the ‘crowd’, this will become an important part of their wealth because it will be high yielding but will it require effort to understand.

So, what is the ‘crowd’?

The term ‘crowd’ is increasingly used in the crowd-sourced finance world. In simple terms, our new, mobile, digital world based on smart phones means that for the first time, huge numbers of the public are able to collect together, without middlemen, to deliver new unique products, businesses and organisations. Everything from a crowd-sourced dictionary (Wikipedia), a crowd-sourced transport solution (Uber) to crowd-sourced money (Bitcoin).

The key is mass numbers of the public, empowered through a digital platform, solving a problem (more effective cost-efficient transport — Uber) or creating new opportunities.

Mass numbers means the public. Individuals who unite together to create a new dynamic.

The ‘crowd’ in investment finance

Investments are considered to be complex. The ‘crowd’, i.e. retail investors, are told that, apart from maybe putting some money aside in a term deposit or buying a rental residential property, they should really leave investments to the professionals or take advice from professional advisors.

This is important as for the first time in history, the crowd has excess income to invest for financial security and a life expectancy that means they will need to invest.

The investment world is segmented and split into four groups:

1. Professionals who work for financial institutions, high net worth people, or people who are part of the investment world as a career.

2. Savvy investors who are not financial professionals but have the wealth, income and education so they are confident about making financial decisions. I am not using the usual ‘sophisticated investor’ definition, where income/wealth is used solely as a determinant of independence, because this is total rubbish — it means that a pauper with no education can win $1million in the lottery today and tomorrow is considered savvy enough to make their own financial decisions! Lol.

3. The public who are not financially savvy, but have financial resources to invest.

4. The public who have no money to invest.

The ‘crowd’ make up Groups 2 and 3. Group 1 is financial institutions and Group 4 aren’t investors. It’s important that we’re clear that 90% of the individuals working in Group 1 are not high net worth people, so are actually part of Group 2.

If the financial institutions control 90% of the investment money in the world, the ‘crowd’ controls 10%.

The problem is that this 10% is not in smart investments — it’s in cash deposits, residential rental property, low yielding property (holiday houses etc.] or very basic shares. If the value of property and shares and cash is $300 trillion, the crowd controls a still reasonable $30trillion [that is $30,000,000,000,000]. In population terms, my guess is that it is up to half of the population in developed countries, with most at 25%.

Australia has one of the most successful superannuation/pension systems in the world.

Of a population of 25 million, 7 million invest outside of their funds and 1.1 million people own self-managed super funds [SMSF]. If SMSFs hold the bulk of the savvy money, then we should start with their A$750 billion and add another $250 billion to make a total investment pool of $1 trillion for seven million people. This is a huge market.

The reality is that the crowd does not gain access to the sophisticated high-yielding investments of the financial institutional world — hedge funds, derivatives, high yielding lending or high performing early stage share investments. Ironically, even though these are high yielding, many of them are low risk.

As the crowd lacks high return/low risk opportunities, their mentality often is that of a ‘lottery’ or ‘get rich quick’ scheme. Excessive risk without due diligence.

The crowd is the least developed investor force in the economy, but it is about to be unleashed through new ‘crowd finance’ opportunities.

Summary

The crowd make up the mass of retail investors in the economy.

The crowd is not savvy with investments.

They control a huge pool of investments.

They miss out on most high return/ low risk opportunities.

Want to learn more about this exciting new industry? Dacxi is a fintech company pioneering crowd finance, with a mission to change the lives of everyone with new wealth opportunities. Connect with us on Facebook to keep in the loop with the latest information and updates.