3 reasons why you shouldn’t get your investment advice from social media
The Independent reported in February 2021 that 1 in 10 investors turned to social media for investment “advice” in 2020. Of the respondents under-35, 20% saw social media as their most important source of information.
This advice – often from unregulated companies or delivered by “influencers” with no qualifications or experience – can be financially disastrous.
From TOWIE (The Only Way is Essex) stars to the “Reddit Rebels” and even Elon Musk, taking advice from anyone other than a financial professional can lead to trend-chasing and significant losses.
1. Why you needn’t chase big returns
GameStop and the “Reddit rebels”
Back in January, the Reddit community r/WallStreetBets urged investors to buy stock in the American video game retailer, GameStop.
Professional investors were “shorting” the company – a process that involves buying a stock, selling it, and then buying it back before it is returned to the lender. The investor is effectively betting that the stock price will fall.
The Reddit forum took exception to what it saw as professionals capitalising on a company’s misfortune and urged its more than 5 million followers to buy into the stock to cause problems for the short sellers.
Many professional investors and large companies lost out. But so did the Reddit followers who joined the party late. As the stock price rose, amateur investors continued to buy, even as the bubble burst.
What this can teach you
You should only ever make an investment for the long-term and with a specific goal in mind. You’ll need to understand your attitude to risk and align your investments with this risk profile.
The general trend of the stock market is upwards and therefore patience will likely be rewarded (although your investment can fall as well as rise).
Chasing huge returns might sound tempting but these high-risk strategies also leave your investment open to significant losses.
2. Make sure the companies you deal with are fully regulated
Avoiding Instagram investment “opportunities”
Last year, Metro reported that two stars of TV’s The Only Way is Essex had used Instagram to encourage their followers to invest in a foreign exchange (Forex) fund. The scheme was not FCA-registered.
These types of scams are continuing, and unwitting celebrities continue to use their social media accounts to try to persuade followers to invest. Most recently, followers of Sophie Kasaei (Logic Financial Services are reliably informed that she is a star of TV’s Geordie Shore) persuaded her followers to invest £1,000 in @tradelikebecksfx.
The BBC, meanwhile, reports that one 24-year-old accountant was scammed out of £17,000 after making a Forex investment based on the Instagram posts of a scammer he followed. The scammer “always posts with his […] rose gold Maserati, saying that he’s rich and self-made”, the victim said.
What this can teach you
Scammers will use recognisable faces and the brand image of celebrities to entice their victims to invest. Use the FCA register to check the firm you are dealing with are regulated and that they are authorised to transact the process they are offering to perform for you.
Or come to us. Seeking advice from professionals will always be your best course of action.
3. Avoiding the latest trends
Elon Musk and the Dogecoin rollercoaster
Tesla owner and billionaire Elon Musk has had a difficult relationship with cryptocurrency.
The value of bitcoin received a huge boost in February 2021 when Musk agreed to accept the cryptocurrency as payment for Tesla vehicles. The environmental impact of the currency later caused him to U-turn. The price of one bitcoin fell from a mid-April peak of £46,000 to £22,000 in June.
Dogecoin has experienced a similar rollercoaster. In December 2020, a single tweet from Musk saw the value of the cryptocurrency soar. In May, hosting the American TV show Saturday Night Live, Musk joked that Dogecoin was “a hustle” and its value fell by 35% almost overnight.
What this can teach you
Following investment trends not only means your money could rise and fall dramatically after a single tweet, but it is also unlikely to be a trend that aligns with your carefully planned investment strategy.
Your long-term investment will be based on reaching a specific goal by a certain date – raising a deposit to help your children onto the property ladder or building a pension pot for your retirement. By following trends, you are effectively chasing big returns and we have already seen that these can come with big risks and the potential for huge losses too.
Remain patient, ignore the noise of TikTok “experts”, celebrity Twitter feeds, and Instagram trends and you stand the best chance of achieving your investment goals.
Get in touch
If would like help managing your investments, get in touch. Our years of combined experience and expertise mean that we can help you remain focused on your long-term investment goals and help you to ignore the noise of fluctuations in the market and the latest short-lived trends.
Please email us at email@example.com or check with your adviser.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.