Social media is not commonly associated with making investments but the two have become intertwined in the retail sector.
DIY investment platform Willis Owen conducted a survey of 1,070 UK adults and found 34% had made at least one change to their investments over the last year as a result of announcements made via social media channels.
Some 9% claim to have made at least five investment changes because of social media, and 2% have made more than 10.
This worrying data has come after several social media giants announced they will crack down on scam investments adverts on their platform.
Picking a wonder stock
Rick Eling, investment director at Quilter, told International Adviser: “Buying shares has never been easier; anybody can do it online.
“But just buying shares isn’t the whole story. To invest well you need to understand risk, diversification, timescales and your own objectives.
“Too many solo investors seem to think that good investment is about picking a wonder stock and getting rich overnight. It’s far less glamorous than that.
“Our research shows that people tend to stick to what they know, buying a small number of UK shares from brand name companies.
“They often assume that a big, solid brand is a sign of a safe, solid investment; but that’s dangerous. You only need to remember names like Marconi, AIG and Carillion to know why.
“The majority of DIY investors could see more substantial returns with lower risks if they invested in the way usually recommended by professional advisers: a diversified, risk-based multi-asset portfolio.”
Demographics
The Willis Owen survey found there are differences when it comes to gender.
Some 43% of male investors have made at least one social media influenced change to their investment portfolios over the past 12 months, compared to just 21% of female investors.
On an age basis, younger investors, who tend to spend more time on social media, are more influenced by it when managing their investments.
Around 45% of those aged 35 – 44 have made one or more social media influenced change to their portfolios over the past 12 months, compared to just 15% of those aged 65 and over.
Historical scams
Social media has not always had the most positive impact on the retail investment sector.
In January 2019, Facebook agreed to donate £3m ($3.77m, €3.42m) to charity Citizens Advice to help deliver a UK investment scams prevention service.
This came after it reached an out-of-court settlement with MoneySavingExpert founder Martin Lewis over his defamation lawsuit against scam investment adverts on Facebook’s website.
Facebook is not the only social media platform which has had issues surrounding investment scams.
In February 2019, Instagram said it is “proactively fighting” against investment scams after the UK fraud and cyber-crime reporting centre, Action Fraud, admitted there has been an increased number of schemes being advertised on the social media platform.
Between October 2018 and February 2019, 356 reports were made to Action Fraud, with a total loss of just over £3.1m – an average of £8,900 per person.
Fake news
Adrian Lowcock, head of personal investing at Willis Owen, said: “There is no doubt social media has joined traditional financial news media as a key source of information for investors.
“This probably helps explain why president Donald Trump has 61.3 million followers on Twitter.
“In the past, successful investment decision making was based on information gathered through traditional media, professional advice and thorough research, but social media offers an immediacy which can impact markets in the short term and influence investors.
“However, they need to pay careful attention to sources, as there is a greater risk of being taken in through ‘fake’ news, than with some more traditional media sources.”
