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The pros and cons of using social media for investing advice

The pros and cons of using social media for investing advice
Image source: Getty Images


Love them or loathe them, social media platforms have a big impact on our lives. One area in which they’re starting to become more influential is investing advice. For now, the jury seems to be out on whether this is a good or a bad thing.

We’re going to weigh up the pros and cons of using social media for investment guidance to help you decide whether you can benefit or not.

Where can I find investing advice online?

Once upon a time, you could only really find investment advice and tips through proper finance publications.

Sure, there would be the occasional person with a blog or a keyboard warrior writing in comments sections. But for the most part, investment information that was broadcast to a lot of people had to be at least a little legit.

Nowadays, with social media platforms, almost anyone can grow their profile. This has led to people dishing out investment advice on platforms like:

  • Reddit
  • YouTube
  • TikTok
  • Twitter

These aren’t the kinds of locations that would normally pop into your head when thinking of finance and investing.

What are the benefits of social media investing advice?

Even though there are a lot of obvious dangers to following investment advice from social media, there can be some advantages. If there is a particular stock (or ‘stonk’) that’s soaring due to popularity on one of these platforms, you might actually benefit.

It is possible to buy in when an investment is gaining traction and then sell before it peaks. This isn’t something new. Investing in this way is a strategy known as momentum investing. Of course, past performance is not an indication of future results.

If you are smart, quick and lucky, you can make money this way. However, no one ever really knows where the peak or top is. So you’d be playing a bit of a dangerous game. Here at The Motley Fool we’re big believers in investing for the long term rather than trying to make quick returns.

What are the drawbacks of using social media investing advice?

Unfortunately, there are a lot more drawbacks than upsides when it comes to investments influenced by social media. Here are just a few reasons you should be wary.

1. Lack of knowledge

Being good at self-marketing on social media platforms and understanding finance are two very different things. Just because someone has a large following online does not mean that they are good at everything.

Most people giving investing advice on these platforms have no significant financial experience or training.

2. Herd mentality

It can be great to feel part of a community. However, if an investing tip is broadcast to a large number of people at once, chances are you won’t be the first to act.

This means that you could end up buying in when the price is already high.

3. Even if it goes right, it can still go wrong

The reddit user who effectively started the whole GameStop saga made a lot of money on paper. Which gets other people excited. But it’s worth remembering that the same person is currently under investigation by the SEC in America.

When investments are being organised on social media, it can be difficult to make sure you’re not involving yourself in market abuse or manipulation. The very nature of these trend investments also means things can turn negative quickly. You don’t want to be the one left naked on the beach when the tide goes out.

What should a beginner invest in?

If you really want some investing advice that aims to help you over the long term, there are still plenty of good places to check out on the internet.

You can head over to The Motley Fool for a start. Of course, there are other great resources out there, ones that aren’t just the creation of someone with a camera who knows how to use hashtags!

We have a great guide for beginners looking to invest. Also, if you don’t want to pick and buy your own shares or funds, you can always use an investing solutions provider that will expertly manage your portfolio for a small fee.

 

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