Young seek investment answers online
But advice from family, friends, financial experts still trumps Tik Tok and Facebook
As more young Kiwi investors are turning to DIY investing, so to is their reliance on online platforms for advice. But it comes with a warning from experts for both investors and those offering advice.
According to research from global comparison site Finder, social media and family/friends are the two most common sources of investing advice for young adults in New Zealand.
A nationally representative survey of nearly 850 Kiwi investors found more than 85 per cent of Gen Z got their share trading tips from either online (44 per cent) or from those they are closest to (43 per cent).
The numbers start dropping through the generations, though.
A quarter of millennials (25 per cent) said they used social media as a source of investing advice, but just 9 per cent of Gen X and 3 per cent of baby boomers said they did so.
Nikki-lee Birdsey, personal finance expert at Finder, said ‘finfluencers’ — financial influencers — are an inevitable byproduct of the ‘hustle culture’ that has manifested online.
“Social media is chock-full of finfluencers claiming they know which stocks are going to be the next big thing, but they often have no formal training in finance,” she said.
“There’s no harm in wanting to know what other people are doing with their money, but take everything you hear with a grain of salt. The same goes with your circle of friends or that finance podcast you love to listen to.”
Birdsey warned despite what you might hear online there is no trick to get rich quick.
“Investing slowly over the long term, in a diversified group of stocks, is often considered a lower-risk way to build your wealth.
“As with all investments, it pays to do your research and don’t invest money that you can’t afford to lose.” Figures last year from the Financial Services Council (FSC) suggested 38.2 per cent of adult New Zealanders — or 1.5 million people — currently use, or plan to use, micro-investing platforms (those such as Sharesies or Hatch), in its research The Rise of the Digital Investor.
Mark Fowler, head of investments at Hobson Wealth, said it wasn’t a surprise so many young investors turned to online when making investment decisions due to the rise of the retail execution platforms both globally and closer to home.
“In conjunction with social media, it has never been easier to invest in equity/crypto markets with many providers allowing retail investors to purchase fractions of shares and so facilitating to a mass market and allowing for smaller amounts of money being able to invest.
“Also, the amount of media coverage around markets is much more heightened and so to me logically online advice is really just an extension of that.” Fowler said there was also a lot more information publicly available now.
But he cautioned not to be swept up by a social media post.
“Try to do some of your ‘own work’,” he said.
“Be wary of just following investing tips, try and source company information independently and be clear on why you want to invest.” Last year a social media-fuelled rise — and later fall — of shares in meme stock Gamestop left many amateur investors counting their losses.
In January 2021, a trading frenzy orchestrated by users on the Reddit message board r/wallstreetbets sent shares in Gamestop soaring overnight.
The American video game and electronics retailer saw its share price rise on the New York Stock Exchange from US$13.66 ($22) on December 8, 2020 to an intraday peak of US$483.00 on January 28.
However, by February 9 Gamestop shares had closed at around US$40 a share.
“If you do fall fowl of an investment trend online then ultimately that could be a good lesson learnt,” Fowler said.
“There is risk with any investment but you just hope that more inexperienced investors haven’t put all their capital at risk.”
What can you say?
Last year the Financial Markets Authority (FMA) released its guide for influencers on talking about money online.
An FMA spokesperson said it’s fine to talk about financial matters online as long as you keep it general.
“People should feel comfortable talking about investments and companies on the share markets. We encourage all New Zealanders to take an interest and discuss financial matters, to get more familiar with financial products.
“It’s when you start getting into recommending particular products or telling individuals what to do, that you may be giving regulated financial advice.
“[Then] the laws around financial advice can come into play.” Anyone providing financial advice must operate under a licence granted by the FMA.
The FMA warned it was also important for consumers to be wary of the advice they took from influencers.
“Social media chatter or posts by social media influencers are no substitute for professional financial advice. Some influencers are paid to promote financial products or services. This should be properly disclosed to you — but may not always be. Some products promoted online — particularly cryptocurrencies and derivatives can be very high risk and they’re often not suitable for general investors.”
A matter of trust
While young investors may be turning to online channels when it comes to investing advice, traditional information sources trump social media when it comes to trust.
An Fma-commissioned survey of 2509 New Zealanders between March and April 2022 found those in the 18-24 age bracket had relatively low trust in social media platforms such as Tiktok, Facebook or Instagram as a source for information or advice about a new financial product.
Only 11 per cent of respondents between the ages of 18-24 said they trusted Tiktok as a source of financial advice, followed by Instagram (12 per cent) and Facebook (14 per cent).
And social discussion website Reddit was trusted among 23 per cent of those between 18-24.
But, maybe somewhat surprisingly, Youtube advice or tutorials ranked significantly higher, with 39 per cent saying they trusted the online video sharing platform.
Despite the likelihood of having no financial qualifications, threequarters of Kiwis between 18-24 said they trust what family or friends said.
This was marginally lower than a financial adviser (77 per cent) and higher than a bank or provider websites (74 per cent).
“Our research shows that although younger people use and trust social media more than older generations when it comes to personal financial matters, they still trust social media less than traditional information sources,” an FMA spokesperson said.
“Encouragingly, this generation appears to be savvy and sceptical when it comes to navigating information online.” But Fowler of Hobson Wealth said it was difficult relying on family and friends if it is not their area of expertise.
“Whilst in my opinion there is no substitute for professional financial advice, I would always encourage investors who are doing it themselves to try and read up as much as possible on the company and the sector.”