In recent months, there has been a surge of younger people getting involved with investing. While it’s good to see that many young people are taking more of an interest in finance, it can be easy to make mistakes.
According to a study by the Financial Conduct Authority (FCA), the rise of investing apps and social media advice could significantly impact thousands of young people. This is partly due to the fact that they typically have low financial resilience, as they usually have lower wages and haven’t had as long to build up wealth.
If your children have expressed an interest in investing, or you think they may do one day, it’s important to sit down and talk to them about it. Here is why it’s important to warn them about the risks of social media trading tips.
You can trace the roots of this phenomenon to the GameStop investing bubble
Recent months have seen a significant increase in the number of young people investing their wealth, as well as an increase in the amount of unsubstantiated financial advice on social media.
In many ways, the roots of this trend can be found in the GameStop investing craze that made headlines at the start of the year.
If you don’t remember, essentially what happened was that many professional investors were “shorting” GameStop’s stock, hoping that it would fall in price. On social media site Reddit, a large group of amateur investors noticed this and then promoted the stock to cause issues for the professionals.
As more people invested in the stock, its price climbed higher and higher. As a result of this rapid growth, many other amateur investors bought in and pushed the price even higher.
As you might imagine, this bubble eventually burst and when it did, many people lost significant amounts of money. Despite this, many people began to see social media as a valid source of investing information.
Studies show that many young adults see social media as a useful source of investing advice
In recent months, there has been an alarming increase in the amount of “financial advice” floating around on popular social media sites, such as TikTok and Reddit.
It’s easy to disregard this as a small number of younger people making a financial mistake, but this behaviour is much more common than you might think. According to a recent report, quoted in the Independent, many investors are increasingly turning to social media before they make investment decisions.
The report shows that 1 in 10 investors admit to “taking tips” from social media. On top of this, one-fifth of adults under the age of 35 now see social media platforms such as TikTok, Facebook, or Twitter as valuable and reputable sources of information.
While it’s nice to see young people taking an interest in their financial futures, taking unsubstantiated advice from online sources could have serious consequences. If your children make the mistake of listening to these sources, they could be exposing themselves to significant risk.
Speak to your children about the importance of reputable advice
Due to the rise of trading apps in recent years, it is easier than ever before for people to begin DIY investing. However, if you’ve ever had a go at DIY and it has gone wrong, you probably know how expensive making a mistake can be.
If you want your children to avoid this, there are three main points to teach them about investing:
Get information from reliable sources
The first key lesson to teach your children if they want to get into investing is that it’s important to be able to make a properly informed decision.
In February, the BBC found a significant number of videos on TikTok that encouraged young people to buy shares in stocks such as GameStop, Blackberry, and AMC. Of course, while these videos may seem persuasive, they often do not explain the associated risks.
This is why it’s important to stress the importance of getting information through reputable sources.
Don’t follow trends
Another major problem that many younger investors often run into is the temptation to jump on the bandwagon when others are investing in a particular asset.
Going back to the initial GameStop bubble, while the initial investors may have seen strong returns, many of those who bought in too late saw their investments drop considerably. If your children decide to simply follow what every other investor online does, they could lose a significant amount of money if a bubble bursts.
Seek expert advice
While tips from social media can occasionally lead to returns, this is no substitute for a long-term strategy – and this is where working with an expert can help them.
One of the main benefits of working with a financial planner is that they can help to tailor a portfolio to their client’s goals and risk tolerance. This helps to grow their wealth while ensuring that they aren’t exposed to any unnecessary risk. They can also act as a useful sounding board, giving helpful advice and feedback.
Get in touch
If you want to know more about how financial advice can benefit investors, get in touch. Please email email@example.com or call 0115 933 8433.
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.