12 August 2022
Social media has empowered a new generation of investors, giving them access to information, learning resources and peer-to-peer sharing in ways that have never existed before. But despite the benefits that access brings, the kaleidoscopic lens of social media, combined with a fear of missing out, can lead to risky, ill-advised investment decisions.
You may recall the online furore regarding Gamestop at the start of 2021, when outraged Reddit forum users got wind of professional investors “shorting” the company – a process whereby an investor borrows a security and sells it on the open market, planning to buy it back later for less money.
Reddit users took exception to what it saw as professionals capitalising on a company’s misfortune and urged its more than five million followers to buy into the stock to cause problems for the short sellers.
This resulted in many professional investors and large companies losing out. But so did the Reddit followers who were late to the party. As the stock price rose, amateur investors continued to buy due to the sensationalist hype, even as the bubble burst.
Bradley Russell, investment manager at wealth manager Brewin Dolphin thinks it’s important to ask yourself a few fundamental questions if you’re considering investing based on what you’ve seen on social media.
“A good place to start is to think: would I ordinarily invest in something like this and what does the person or company promoting the investment stand to gain from my involvement and, perhaps most importantly, is this money I can afford to lose if it all goes wrong?”
“As a bare minimum, we should understand what we are buying. Unfortunately, most advice circulating on social media, is neither trusted, nor expert. Always do your due diligence and/or ask somebody you trust and who is well-placed to give advice”.
Another worrying trend sees scammers paying reality TV celebrities to promote forex trading schemes and apps which are not licensed or regulated by the FCA. By using recognisable faces and luxury lifestyle images, they entice their victims with the promise of incredible returns.
What invariably happens though, is the investors see an initial return, are encouraged to invest more and then lose all their money only to be blocked by any contacts they may have had, with no way of recouping their funds.
Bradley says to exercise caution around online Instagram “gurus”: “If you did find the mythical goose that laid the golden egg, would you be rushing out to tell everyone about it? That seems to be what these online accounts are offering, and often for no personal gain. If something seems too good to be true, it usually is.”
Bradley advises the following if you are set on using social media to influence your investment decisions:
- Invest for the long-term and with a specific goal in mind. You’ll need to understand your attitude to risk and make sure that your investments are a suitable match for your risk profile.
- Check your sources: make sure anything you invest in is regulated by the FCA, and understand the risks associated with unregulated schemes such as some forex schemes and cryptocurrencies.
- The general long-term trend of the stock market is upwards and therefore patience will likely be rewarded (although your investment can fall as well as rise).
Bradley Russell, and his fellow investment managers, at Brewin Dolphin put together bespoke investment portfolios for clients based on their long-term objectives and their attitude to risk. The portfolios will have a mixture of hand-picked holdings in them including third party funds and individual stocks that are researched and recommended by the in-house research team.
The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343
Siân Robertson: Sian.Robertson@brewin.co.uk / Tel: +44 (0) 20 3201 3026
Chloe McFarlane: chloe.mcfarlane@brewin.co.uk / Tel: +44 020 3201 3490
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
NOTES TO EDITORS
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £56.3* billion in total funds, we offer award-winning, personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £49.4* billion on a discretionary basis.
Our intermediary business manages £18.3* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service, the MI Brewin Dolphin Voyager fund range and Sustainable MPS.
In line with the premium we place on personal relationships, we’ve built a network of 33 offices across the UK, Jersey and Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
For more information on the recommended cash acquisition of Brewin Dolphin by RBC Wealth Management announced on 31 March 2022, visit: https://www.brewin.co.uk/group/investor-relations
*as at 31st March 2022.
Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444)