Social media and investing: what influencers may not tell you

Singapore

MAKING investments based off an influencer's stock picks synced to a Doja Cat tune on TikTok. Holding on to short-squeeze stocks because anonymous Reddit users say so.

Who does that? A rising number of young investors today, multiple studies - and this year's dizzying Gamestop rally - have shown. Social media content by self-styled "financial gurus" and open forums have become key sources of advice for the young as they take their first steps into investing.

About 91 per cent of Gen Zs aged 18 to 24 use social media - namely TikTok, YouTube, Reddit, Instagram and Twitter - for information on investing, more than any other source of information, a survey by The Motley Fool showed in April.

Compared to static financial blogs, short videos, pastel-coloured infographics and interactive forums are arguably more entertaining and relevant to the younger crowd.

"StockTok", for instance, refers to a booming sub-community of content creators dishing out investment advice on TikTok. Videos with the hashtag #StockTok have collectively amassed 1.5 billion views to date.

Over on Reddit, popular subreddit r/WallStreetBets currently has over 10.7 million members - up from just 3.3 million in January - discussing stock and options trading.

While it is encouraging to see more people investing from a younger age, among the dangers of heeding advice on social media is that many of these sources are not regulated or licensed by the authorities.

This means investment ideas are given with little consideration for how much each individual fully understands his or her risk profile, risk appetite and knowledge of investment products, says Evy Wee, DBS head of financial planning and personal investing.

"All investors, regardless of age, must fully comprehend the risks that each investment solution carries, especially as uncertainty - and consequently, market volatility - from the pandemic remains," she notes.

Though social media provides greater and easier access to a broad range of content, there increasingly have been "finance influencers" stepping into promoting financial platforms and products.

Influencers tend to focus on the "best-looking parts" of their financial journey, writing about their wins and keeping quiet about their losses, says Endowus CEO Gregory Van.

This may mislead their followers on the risks involved and, if an influencer were to be engaged by their audience, it will be difficult for them to respond accurately to questions posed about the product.

"If your favourite platform or influencer has suddenly taken a turn for a different topic, such as investing or personal finance, you should be able to quickly identify that this might be outside (their) comfort zone and think twice about the recommendations made," says Mr Van.

He observes that younger investors are spending their spare savings on cryptocurrency and stocks, with many following advice from social media channels and "getting lured by the promise to get rich quick at a far lower barrier to entry", such as investing from as little as a dollar.

"Getting rich quick" is a common theme to attract people who are not financially savvy. "Many (content creators) claim they provide the strategies experts use, and all you have to do is replicate those for financial success," says Mr Van.

Recent checks by The Business Times found popular videos titled "How to be a millionaire at 16", "Investing with 75 cents a day" and "Day in the life of a 14-year-old stock trader", among others.

Further, screengrabs or videos showing actual gains from trading accounts have many other factors of consideration which the end viewer is not privy to, yet tempted with the promise of returns, says Mr Van.

DBS's Ms Wee adds that some videos over-simplify complex investing strategies or processes, making it seem possible to earn huge profits with little financial knowledge.

Other potential red flags to watch out for include extreme market calls or far-fetched target returns. "Remember, if something is too good to be true, it probably is," says Jacquelyn Tan, UOB head of group personal financial services.

Still, this is not to say that "alternative" sources of advice on social media are responsible for all unintended investment consequences.

In all fairness, they might provide new perspectives or discuss stocks rarely covered by mainstream sources, says Ms Wee.

"It boils down more to whether they are the sole sources of information for many first-time investors. As with most issues or situations we are faced with in life, blindly following advice from a single source isn't recommended," she notes.

The onus is on investors to do their own thorough research and raise their financial literacy; the first step is to understand one's risk profile and risk appetite.

Apart from speaking to licensed financial advisers, there are financial planning apps by major banks that can help individuals assess their financial situation before investing.

"A digital advisory tool can be used to help customers remove guesswork along with investment biases, which in turn, widens the pool of investment solutions suited to them. It can help customers uncover blind spots too," says Ms Wee.

There are also webinars and live-stream sessions hosted by licensed fund managers that investors can sign up for.

Those who ultimately prefer to consume content on social media should follow trusted sources, such as established banks and financial institutions licensed in Singapore.

UOB, for example, shares financial literacy content - which includes market outlook insights every quarter and views on investment megatrends and themes periodically - on Facebook, LinkedIn and YouTube.

In the last 12 months, the bank's social media videos were viewed by almost 700,000 unique individuals.

DBS is also exploring new platforms such as TikTok to publish financial literacy content, complementing its existing depository of online articles and guides.

"Many new investors have largely seen markets rebound and not experienced prolonged periods of decline. One of the consequences of this environment is that new investors might get overconfident - a common behavioural bias - as it can result in them trusting in their own abilities too much, especially if they did not do sufficient research," says Ms Wee.

• The Money Playbook is a personal finance column that discusses how to take charge of your financial well-being.