More than half of 18-34 year-olds who invest get their ideas from social media channels, according to new research.
A survey of 2,000 people found Reddit is the most popular source of investment information for young people, with TikTok following behind in second place, according to research conducted in September by Hargreaves Lansdown.
Other popular social media platforms such as Instagram, Facebook, and LinkedIn also provided investment inspiration for people under 34 years of age.
In comparison, only 4% of investors aged 55-64 use social media for investment information, with a third saying they prefer traditional sources such as newspapers.
However, the research also showed that 43% of young investors still use websites of financial companies to inform their decisions, possibly including Proactive Investors.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said, “The collision between social media and financial markets has been one of the most dramatic trends emerging from the pandemic and it shows little sign of easing.”
Young investors should be wary of only relying on social media for information, she added, as it is a place where “speculation surrounding hot stocks runs rife.”
Streeter said it was “particularly worrying” that Reddit was so popular, as it was a large part of the meme stock frenzy that erupted this year around GameStop and AMC Entertainment, where the WallStreetBets sub-reddit forum sparked massive investment into the company and heralded a new era of ‘YOLO trading’.
“For some new investors, trading has become a game and a form of entertainment, rather than a well thought-out long-term investment strategy. The risk is that they could get their fingers seriously burnt by following the herd into highly risky purchases, which could scare them off investing in the future.”
However, she was reassured that traditional research is also still being used to inform decisions and she recommended that “investors do as much homework as they can before taking the plunge into any investment”.