We live in a digital world where we get most of our knowledge from online sources. Although this is a massive positive for many people, some lose a lot of money due to falling for incorrect information.
The investment world is something that everyone would like to get their hands on. They see multiple sources claiming it helps them make their riches by trading crypto or stock investments. Although it is possible, many people don’t make thousands of dollars because they invest in the wrong things by following misleading information.
The younger generation is influenced by the internet. If they see a trend happening, they tend to jump on board. That may seem like a good idea at the time but it isn’t. Think of the GameStop scam. A modern investment story that made a lot of people rich but a lot more people lost millions of dollars.
In this article, we will look at the pros and cons of getting investment tips from the online world. However, don’t be surprised that they are mainly negatives rather than positives.
Where To Get Investment Tips Online?
There are many platforms where investors will share some of their investment tips. Some of those include Twitter, YouTube, Reddit, TikTok and Twitter. All of these are free to use and there are no rules and regulations for sharing investment tips. In fact, people make a living from this. They share their “insider knowledge” of the digital world when deep down, they know nothing about the stock.
The Positives Of Investment Tips Online
Despite there being a lot of negatives with following online tips you get on investments, there are some positives. For example, if you see a stock being mentioned a lot, there might be a good reason for this. Therefore, you can take the opportunity to invest in this investment and then quickly dip out of the stock so you profit. This is also known as momentum investing and isn’t exactly new to the investment world.
You have to be smart when you are using this method for trading. Don’t invest in the stock when it is at its peak as it is more likely that you will lose your money. Nevertheless, you could use candlestick graphs to help you gain some profit from this.
The Negatives Of Investment Tips Online
There are plenty of negatives when following investment tips online. If you follow investment tips online, you will likely lose money. That is why it is advised to conduct your research on a stock investment before investing.
Finfluencers
If you want reliable and trustworthy investment advice, you should follow financial partners who are licensed by any financial regulatory body such as The Financial Conduct Authority in the UK. Not only will they provide the logic behind the investment but they also have an ethical mind, unlike those finfluencers.
If you follow someone who is FCA-regulated, you can have peace of mind knowing that you are following tips from an experienced and well-respected investor. However, when following tips from someone in a forum or someone who has posted a video on YouTube, you don’t have this security.
Ideally, social media channels should be managing these online tips that people are putting out there; however, that is easier said than done. Due to these social media platforms not being regulated to how they should be, it is a lot easier to put false information out there.
Social Media Is Full Of Online Scams
One of the biggest issues with the online world is that there are many online scams. Due to this, it makes it very difficult to differentiate between a scam and an investment tip. Scams with money have been around for many years. Social media is a new tool that is used by scammers to steal thousands of dollars.
According to Wealth Recovery Solicitors, “Internet scams pose an ever-present threat to everyone that goes online, so it is essential to familiarise yourself with the different types of online scams so that you can prevent yourself from falling victim to them in the future.”
There are many different types of online scams as well. Some of these include; Identity theft, romance, phishing, lottery, pump and dump, Ponzi schemes and much more. The GameStop scam was a Pump and Dump scheme that had a massive impact on the stock market in 2021. Some investors released fake news about the stock which made people want to invest in the stock. Once they invested in this stock, the stock price shot up. As soon as the stock price became stagnant, many investors cashed out on their investment which would drop the stock value. It left thousands of people losing millions of dollars because of this Pump and Dump scheme.
The problem with this is that there are many Pump and Dump schemes where investors still fall for them. The issue with this is that it is hard to tell whether an investment tip is legitimate or whether or not it is part of a Pump and Dump scheme.
Social Media Encourages To Chase Trends
Another issue with social media is that it encourages new investors to follow modern trends. Again, going back to the GameStop stock, a bunch of investors encouraged people to buy the stock on Reddit. Although many people made millions from this stock, there were a lot more people who lost millions.
You mustn’t invest in a stock that is “on-trend”. The value of this stock is only going to increase for so long before you see the share price plummet rapidly. The last thing you want is to be on the receiving end of losing your money. If you have read something about a stock where it will shoot up in value, try and find proof.
Remember, everybody’s financial goals are very different from others. That is why you must remind yourself of your financial goals before investing. If you want quick wins and are willing to risk your money, following these pump-and-dump schemes may benefit you. However, if you are investing for your future, whether that is a retirement fund or a deposit on a house, you must be more cautious with your investment.
They Tend To Lack Knowledge
If you don’t know about the stock market because you are a beginner, you won’t give tips to your friends and family. You wouldn’t want to risk them losing their money. However, when you are following these online investors, they don’t care whether you lose money or not. Plus, they may also have very little knowledge of the investment market.
The reason why so many people follow these online investment tips is because the person giving the advice has a large following. However, having a large following doesn’t necessarily mean they know what they are talking about either.
You should look into everyone who is advising on their investments. You could even question them yourself by responding to their videos or comments in forums.
You Could Be Late To The Party
Another problem with following these investment tips is that they are likely in a community. Therefore, it could mean there have been many investors from the community who have beaten you to it. Additionally, you could invest your money at the highest peak of the share price. Therefore, you could quickly lose your money because people are selling at its peak.
It Can Always Go Wrong
Another issue with following these online investment tips is that they can always go wrong. GameStop for example. They went well with many people who invested in the stock early; however, those who invested later on lost their money.
If an investment is being arranged on a forum or an online group, you must ensure you are not involved with market manipulation. Remember the sooner the share price increases, the sooner it could fall.
Essential Tips For New Investors
There are many tips you should follow instead of getting your “advice” from different online platforms.
Do Your Own Research
Before you start following influencers online and seeing the stocks they are investing in. You should invest in stocks you know yourself. Researching stocks is the best way to know if you will make money. You shouldn’t take tips from people online because they are likely giving these tips out for their benefit.
Diversify Your Portfolio
Another tip for investors is to invest in multiple stocks. Don’t put all your eggs in one basket as something terrible could go wrong with that stock. That is why you must make sure you invest in multiple stocks you know. For example, investing in one AI company might benefit you for too long as something could go wrong with the company. Invest in multiple companies that all grow at different rates.
Summary
Although social media is a great platform for people to get their news from, it isn’t the best place for getting investment tips. There are many online scams where people try to get you to invest in a stock that won’t be successful.
We have referenced the GameStop stock many times in this article because it is a modern example of how quickly things can go wrong. If you are unsure about this Pump and Dump scheme, there is a film called Dumb Money which has recently been released in cinemas. This will give you a good insight into the pros and cons of following investment tips from social media users.
Read Also: Decrypting Cryptocurrency Investment: Pros, Cons, and Key Considerations
