May 26th, 2021

Why you should be wary of social media trading tips

In recent months, there has been an explosion of videos on social media sites such as TikTok that purport to offer financial tips that can help people to pay less tax or earn money through investing. You may already be thinking that this sounds too good to be true, and that’s because it usually is.

While it might be tempting to listen to their suggestions, you should be careful about taking unsubstantiated advice from online sources. If you want to know more about how this can pose a risk to your financial wellbeing, read on to find out why you should be wary of social media trading tips.

Many amateur investors lost a considerable amount of money in the GameStop bubble

If you’ve been paying attention to headlines in recent months, you may remember the GameStop investing craze that took place in January.

To explain it in simple terms, many professional investors were “shorting” GameStop’s stock, essentially betting that it would fall in price. On Reddit, a large group of amateur investors noticed this and began promoting the stock to cause problems for the professionals.

As more and more people invested in the stock, its price began to climb higher and higher. Because of this rapid growth, many other amateur investors saw it as an ideal opportunity to buy and jumped on the bandwagon.

However, this surge in stock price wouldn’t last, and when the bubble burst, many of these amateur investors lost significant amounts of money. If you bought in too late, you may have found that the value of your investment fell by as much as 90% in a matter of days.

The proliferation of trading apps in recent years, such as Robinhood, have made it easier than ever before to begin investing. While it’s good to see that more people are taking an interest in their financial future, the risks of doing so without taking professional advice can be significant.

Another good example of the risk of amateur investing is the recent rise and fall in the price of internet cryptocurrency Dogecoin. According to figures published in the Guardian, the asset, which was initially derided as a joke, surged in value by 14,000% between January and early May.

However, if you bought in too late you could also have made a significant loss. After tech billionaire Elon Musk’s appearance on comedy show SNL, in which he joked that the currency was a “hustle”, the price fell by 35% in a day.

Choosing your investments based on internet trends is, at best, a roll of the dice. If you get lucky then you could see strong returns, but if you aren’t, you could lose a considerable amount of your wealth.

Taking unsubstantiated advice from TikTok can expose you to unnecessary risk

Another recent internet trend has been a surge in videos about finance on the social media app TikTok. Again, while it’s good to see more young people taking an interest in their financial futures, you should always be wary of taking unsubstantiated advice.

There is certainly a considerable amount of interest when it comes to investing – according to financial information site MarketWatch, the investing hashtag on the social media platform has over 1.6 billion views, while the term “GameStop” was, at one point, searched more than 600 million times in one day.

Many of the financial videos on TikTok offer investing tips or ways to save money on tax but the advice is often of dubious quality at best, and dangerously misleading at worst.

According to a report published by the BBC, around one in seven videos analysed encouraged users to make risky financial decisions without adding a warning about the associated risks.

Taking unsubstantiated advice from the internet can be a gamble and while it may pay off if you get lucky, you would be exposing yourself to an unnecessary amount of risk. If you take a chance and it goes poorly, the resulting loss could significantly impact your progress towards your financial goals.

Taking professional advice can help you to invest more effectively

While you can generally trust the internet’s advice when it comes to things like cooking recipes and holiday destinations, it can be dangerous to do so when it comes to your finances.

When investing, it’s important to be able to make clear decisions based on facts. While tips from social media can sometimes lead to returns, they are no substitute for working with an adviser.

If you want to grow your wealth in the most effective way when investing, seeking professional advice can be a great way to do so.

When you work with a financial adviser, they can help to tailor your investment portfolio to match your goals and risk tolerance to ensure that you’re not exposed to any unnecessary risk. One of the ways they can do this is by diversifying your investments, protecting your wealth from a sudden market shock by spreading it out across different sectors and asset classes.

An adviser can also act as a sounding board, giving you helpful feedback and advice, so you can invest with the confidence that comes from knowing that you’re making an informed decision.

Get in touch

If you want to grow your wealth through investing and want to be sure that you’re making the right decisions, we can help. Email enquiries@prosserknowles.co.uk or click here to request a call back from one of our advisers.

Please note:

The value of your investment 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.

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