The younger generations of investors are flocking to social media platforms like TikTok, Instagram and Reddit for financial advice.
According to a survey from investment firm TIAA, one-third of Americans trust social media to help them make financial decisions, and 32% trust social media influencers and celebrities’ financial advice.
However, navigating the various recommendations can be tricky. While you can do background checks on investment and financial professionals through regulatory agencies, it’s harder to know the motivation of someone telling you to buy some up-and-coming hot stock.
On social media, anybody can jump into the conversation, regardless of who they are, what their background is and what their experiences are.
If you frequently find yourself going to social media for financial advice, here are four tips for what to do.
- Find financial professionals. Financial advisors are trained on money matters, and many have a strong social media presence of their own. For instance, according to a 2020 survey by Putnam Investments, 36% of advisor respondents had hosted or participated in a LinkedIn Live session. Also, vet the people you follow. Brokers and brokerage firms can be looked up on the Financial Industry Regulatory Authority website, while investment advisors can be looked up on the Securities and Exchange Commission’s website. And, to verify a certified financial planner’s background, go to the CFP Board’s website.
- Tread carefully with investment advice. Many financial professionals don’t share specific investment advice on social media, such as what stock to buy and sell at a specific time. Why? Because licensed professionals are regulated by the SEC and FIRNA. So, if you see investment advice on social media, that’s a good indication that an untrained, unlicensed user is sharing an opinion, which should be taken with a grain of salt.
- Do your research. There’s nothing wrong with getting excited about a financial tip you heard on social media. However, the key is to supplement it with your own research before taking action. You should consult established, reputable and trusted resources before making financial decisions. This could require reaching out to a financial professional through a free consultation.
- DIY with your “play” money. If you do decide to invest after getting advice from social media (and, of course, researching it), do so with money you are willing to lose. This doesn’t mean failure is inevitable, but this approach allows you to reserve your “serious money” for those important goals you have.
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