Back in January, a group of investors on the social media platform Reddit bought into US retailer GameStop, rapidly increasing the video game store’s share price and leading to huge losses for some Wall Street short-sellers.

This “Reddit rebellion” sent a message to hedge funds engaging in the practice of capitalising on struggling companies to see instant gains. It also highlighted the way many young – and often novice – investors are approaching the investment market.

A recent report from behavioural finance firm Oxford Risk, as quoted in the Independent, confirms investors are increasingly turning to social media before making investment decisions.

One in ten investors admits to “taking tips” from social media, while a fifth of under-35s now see social media platforms such as TikTok, Facebook, and Twitter as their most valuable source of information.

Taking tips from social media, rather than seeking professional financial advice, can encourage emotional decision-making and kneejerk reactions. The financial implications are huge, often among demographics that can ill afford it.

The use of social media platforms as a source of investment advice is on the rise

While the GameStop stunt did earn some investors quick gains, others – those who jumped on the bandwagon too late – found themselves with overpriced stock just as the falsely inflated prices began to tumble.

The FCA stepped in with its own warnings, based on survey results into the mindset of an emerging group of young, high-risk investors.

Their research suggests that investment apps and the rise of social media advice could have huge repercussions for long-term financial stability, especially among demographics where financial resilience is already low.

While nearly two thirds (59%) of those surveyed agree that a large loss would negatively impact their current or future lifestyle, only 40% viewed “losing some money” as a risk of investing.

The report also found elevated levels of self-confidence – 78% agreed with the statement: “I trust my instincts to tell me when it’s time to buy and to sell”.

Social media investment advice is unlikely to carry the necessary disclaimers

In February, a BBC investigation found TikTok video-makers encouraging people to buy shares in GameStop, BlackBerry, and AMC, as well as Dogecoin.

It also reported that “one popular astrologer with more than one million followers suggested that the position of the planets could affect the price of crypto-currency.”

While many of these videos encouraged viewers to make financial decisions, many did not outline the associated risks, or acknowledge that their suggestions should not be taken as financial advice. Others used past market performance as an indication of future growth.

As with any investment opportunity promising high returns, it pays to be wary and to remember that anything that appears too good to be true, likely is.

Boolers can help your clients manage investments over the long-term

Following social media advice and investment trends can be both financially risky and run contrary to the fundamentals of sound investing.

While some online platforms might encourage chasing gains through high-risk investment and emotional, knee-jerk reactions, at Boolers, we understand that investing isn’t a competition.

It’s not about winning or losing against your fellow investors, but about understanding long-term goals and building an investment strategy designed to attain those goals.

We can use our expertise and decades of combined experience in the markets to help your clients:

• Ignore the noise of market fluctuations
• Avoid high-risk trends that don’t match their investment profile
• Focus on long-term goals and achieving them with the smallest possible risk.

The investment portfolio we build for your clients won’t follow trends and focus on one stock. It will be diversified across asset class, sector, and location to spread investment risk.

We will take the time to get to know your clients – their aspirations, attitude to risk, and capacity for loss – and build a plan that matches their goals to their risk profile.

We will then review it regularly, suggesting changes where needed, and rebalancing the portfolio to maintain the right mix for them.

This long-term approach, with a measured understanding of risk versus reward, stands the best chance of success, where success is measured by the attainment of life goals.

Get in touch

With the trend for social media investment “advice” rising, we at Boolers can help your clients and their children understand the difference between the suggestions of Reddit forums and TikTok influencers, and genuine, long-term financial advice.

A solid investment strategy based on your clients’ aspirations can help them to achieve their goals while taking the minimum risk.

If you have clients who would benefit from help with their investment portfolio, or who are looking to invest for the first time, please get in touch. Email enquiries@boolers.co.uk or call 0116 240 7070.

Please note

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.