Most investors sift through myriad sources before making an investment decision. Social media is speeding up the process — not always with good results.
A new report from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation dives into how investors use social media and follow “finfluencers” to inform their investment decisions.
“There’s such an inundation of information and such a pressure to act quickly,” Gerri Walsh, president of the FINRA Foundation, recently told me. “It’s very simple to make an investing decision that you might regret if you don’t build in a speed hump for yourself.”
Those who said they make decisions based on recommendations from a social media personality were mostly younger — 6 in 10 were between age 18 and 34 — while only a tiny sliver, 9%, were 55 or older, according to the report.
“This research shows that social media is a significant resource for investors, but it comes with both potential benefits and costs,” Walsh said. Many people who turn to these sources score low on investment knowledge tests yet tend to be overconfident about their investment savvy, she added.
Read more: The rise of ‘finfluencers:’ Can you really trust financial advice on social media?
This cohort of investors answered an average of 42% of questions correctly on an objective investment knowledge quiz, yet 63% rated their investment knowledge as high. “That makes them vulnerable to investment fraud and raises serious concerns,” Walsh said.
Nearly 7 in 10 social media users and finfluencer followers reported losing money to fraud.
“If you’re the person who lost money to a fraud, that can feel like ‘I’m just a fool who couldn’t identify something that was too good to be true,’” Walsh said. “The reality is that scammers are so sophisticated, they make those opportunities seem both real and true.”
As for making investing decisions, there’s value in devoting time to research. “It’s often a more complex question than a 15-second video or a one-minute blog post could possibly cover,” Walsh said.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.