Just when you thought the world couldn’t get much crazier, recent data shows that a fifth of UK investors have been influenced by Reddit when it comes to making financial decisions.
Is this trend something that’s going to grow in popularity or is it a house of cards waiting to fall? We take a look at what’s going on and whether you should be excited or worried.
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Where are UK investors going for advice?
According to a survey carried out by uk.Investing.com, as many as one in five UK investors have used the Reddit social media platform to drive investment decisions.
There are, of course, both pros and cons when using social media for investing advice. But a lot of the time, the downsides outweigh the upsides.
It’s important to note that not all social media platforms work in the same way. At least with Reddit, there is an opportunity to write long-form in order to express opinions. Debate can then be waged at length in the comments.
The same can’t be said for platforms like TikTok, where users only have 15 or 60 seconds to deliver their ‘stonk tips’.
Who are the UK investors using these platforms?
You might expect that the people using social media to assist their investing decisions are all of a younger demographic. But this isn’t the case.
This data shows that over 16% of investors over 40 are using Reddit to influence their actions.
Many of these investors have only been using Reddit since the whole GameStop saga. This is slightly worrying because these people may not be the ‘diamond hand’ holders that forums like to brag about.
When you have a lot of inexperienced investors following crowds and trends, you start to enter bubble territory. I’m sure the intention was never to rope in lots of people. But some fear missing out and just can’t help wanting a piece of the action.
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Should investors be excited or worried?
Everyone should have access to decent financial information. An influx of retail traders and investors in the UK is great. But proper research is still important. Even as places like Reddit become more popular.
Putting more knowledge into the hands of regular investors is excellent. Unfortunately, there is minimal control of the flood of information. So amongst any useful details coming from these sites, there’s also plenty of useless debris.
Jesse Cohen, senior analyst at uk.Investing.com explains how these changes are altering the landscape of investing: “The dramatic rise in retail investing seems like it’s here to stay, and that should bode well for social media platforms like Reddit.
“The battle between the retail investor, which entered the market amid the Covid pandemic, and Wall Street hedge funds will undoubtedly intensify in the years to come. The returns of the individual investor have changed the entire character of the market, and the professionals are no longer the only force that matters.”
Where else can UK investors get information?
The purpose of social media is to grab and hold attention. The intention wasn’t to create a financial advice service and things are heading in a bit of a weird and scary direction.
No one can predict exactly what is going to happen in the markets. However, tried and tested financial publications tend to offer more sound insights than inexperienced internet users.
Many places writing about finance and investing have been around for years. They don’t have a crystal ball, but no one does. Social media users have the benefit of being able to just slip away into the darkness when things come crashing down around them. Proper financial journalists and writers do not have that same luxury.
Using platforms that shoulder some accountability can be a much safer place to learn about investing. One tweet or a video lasting less than a minute just isn’t able to provide adequate information.
