31 Aug 2021

Concerns that young investors are taking on too much risk

The Financial Conduct Authority (FCA) has raised serious concerns that younger investors are taking on much more investment risk than they understand,

Fuelled by social media, YouTube, and investment apps, younger investors have said they feel very confident in their investment decisions, and yet the sources of information they are relying on are not necessarily accurate.

The FCA has warned that 59% of young investors could lose money that would have a fundamental impact on their finances.

Their research found that over 4 in 10 investors did not consider ‘losing some money’ as one of the risks of investing, despite having 100% of their capital at risk.

They found they exhibited high confidence in their knowledge, but actually had very little understanding of the risks involved.

In terms of what they are investing in, 78% said they chose by ‘gut instinct’ and less than 38% could give a functional reason for investing in the top three investments that they held.

Rather, the driver for investing appeared to be for the challenge, competition, and novelty, not for conventional reasons such as making their money work harder, or to save for a particular purpose.

The FCA has raised serious concerns that the younger investor is being targeted by unscrupulous firms, and the FCA are already looking at those who claim on social media to provide investment advice and yet are not regulated to do so, having already taken one such ‘social media adviser’ to court.

As parents, aunts, uncles, god parents and grandparents, we can help the younger generation by talking with them and helping them see past the hype – I’m sure we are all familiar with the old adage, if it seems too good to be true it probably is, and instead open the next generations eyes and understanding that investing is to help you achieve your financial goals and care should be taken that this is done right.