Social media hype and the gambling-like thrill of competing to get rich quick are driving younger investors to turn to cryptocurrencies, foreign exchange trading and other high-risk products, according to the City watchdog.
The Financial Conduct Authority said it was seeing more people chasing high returns and was concerned that many new investors were increasingly putting money into high-risk investments which may not be right for them.
To tackle the problem, the regulator has now launched an £11m campaign targeting inexperienced investors to help them understand the risks they are running.
The FCA surveyed 1,000 people aged 18 to 40 who invest in high-risk products including cryptocurrencies such as bitcoin, contracts for difference (also known as CFDs), foreign exchange (forex) trading and investment-based crowdfunding.
Three quarters (76%) said they felt a “sense of competitiveness” when putting their money into an investment, with more than two-thirds (68%) likening it to gambling. In many cases they were driven by “competition with friends, family and acquaintances” as well as their own past investments.
While experts traditionally say that those putting money into the stock market should invest for a minimum of five years, and preferably a lot longer than that, in order to overcome the inevitable short-term volatility, the regulator also found that few of those surveyed were in it for the long haul.
Just one in five (21%) said they were considering holding their most recent investment for more than a year, and fewer than one in 10 (8%) for more than five years. That was despite 60% of those surveyed saying they preferred more stable returns to investments that rise and fall dramatically.
“Hype on social media and in the news is driving new investors to take up high-risk investments,” the FCA said.
It has previously talked about how younger investors were often swayed by financial and investment influencers on sites such as Instagram and TikTok. Many of those quizzed as part of the research agreed that “constantly hearing about a certain investment on the news, on social media and from other people” encouraged them to put money into specific products.
The new research also found that the majority of those who bought forex or crypto (57% and 69% respectively) incorrectly believed they were regulated by the FCA. As a result, they were unlikely to understand the lack of investor protection and the risk of losing some or all of their money.
The regulator’s new InvestSmart campaign will be targeting people online and through social media to help ensure inexperienced investors “don’t get played”.
Earlier this year it was suggested that people looking to put money into higher-risk investments could be required to watch educational videos or pass an online test first.