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Beware of Investment Advice from Social Media "Fin-Fluencers"

Beware of Investment Advice from Social Media "Fin-Fluencers"

December 29, 2021

When looking for financial advice and where to invest your hard-earned money, be careful about falling victim to the meme stock mania sweeping the financial markets right now.

What is a Meme Stock?

Meme stock mania was the start of something new. Fin-fluencers promote or talk about a stock online on social media, and large groups of amateur investors jump on board, inflating the value of a company whose underlying structure may not match the higher share prices. The problem is that this phenomenon's effect on the stock market is real and must be accounted for when deciding where and how to invest.

The Dangers of Social Media Investment Schemes

Another issue that the U.S. Securities and Exchange Commission warns about is scammers who use social media to spread misleading or false information about a stock to manipulate prices. Although social media can be a helpful tool for researching market trends and public opinion of an investment opportunity, it also carries some risk. These rumors leaked on social media may appear very convincing but also designed to positively or negatively impact stock prices. Therefore, you must be very careful when evaluating information found on social media regarding investments. All this free information combined with easy access to investment apps like Robinhood muddy the waters of proper investment protocols.

Both examples of fraudsters and fin-fluencers pose a significant danger to savvy investors. Large groups of people can collude online to manipulate the price of stocks, and if you follow suit, you could lose in the end. Do not buy impulsively because a stranger online says you should. Always do your homework first, thoroughly research the company, and consult trusted money experts before investing.

You must ask yourself, what makes this fin-fluencer qualified to give financial advice? Millions of anonymous people online are boasting about their winnings and claiming to be experts. Some even show screenshots of their great returns on an investment for specific trades. However, they certainly don't post their losses, saying, "if you follow us, you'll make money also, so stay tuned…"

How to Invest Wisely

When considering whether or not to take financial advice from a fin-fluencer, consider the source. If the person is a notable financial advisor with years of experience, then listen to them. But if it's some regular Joe who has made a few bucks from recent stock investments, be careful.

The key here is if someone doesn't put their name behind the advice, they are not to be trusted. Financial advisement is a highly regulated industry with strict ethical standards and requirements. However, you can find plenty of people online who stand behind their advice and are qualified to give it.

When teaching your kids how to invest, make sure they steer clear of social media fin-fluencers. They are growing up in a world where social media is trusted and normal. If your kids are opening an investment account, sit down with them and talk about how to best invest, where, and find out where the information is coming from. Kids can be easily influenced by a crowd mentality convincing them that they are simply making free money and having fun.