The Effect Social Media Has on Investing
There is no doubt that we are all well and truly living in the digital age with 83% of the global population owning a smartphone and the continuing rise of social media use with more than half of the global population now using social media platforms. Whether we are using these platforms to interact and engage with others or read up on news and trends, it is evident that living in the viral Tiktok era has definitely changed how we consume information and we have seen this in how investors are now using these platforms to inform their decision-making.
The Social Influence
It’s no surprise that platforms like Twitter, Reddit, Instagram, TikTok and many others have now become the go-to places for financial news, especially for the younger generation. Seeking financial advice from financial advisors can be expensive and daunting and for many, social media has bridged this gap. Because of these platforms, financial information has become more accessible and it also comes in bite-size, entertaining and engaging formats.
We have also seen the rise of social media influencers over the last few years, whether it's a make-up product or a car, people want to see people they can either relate to or trust recommend a product or service. One example of someone with influence is Elon Musk the CEO of SpaceX and Tesla. In 2021 he tweeted a breakup meme with the hashtag #Bitcoin which saw the price of the cryptocurrency drop.
Earlier this year he also tweeted that he will continue to hold his Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) which resulted in the prices of these cryptocurrencies going up at the time. With over 100 million followers and being one of the richest men in the world it’s really no surprise that he moves markets by just endorsing stocks and cryptocurrencies.
With many people looking to social media for financial advice, it has increasingly made it easier for social media influencers without any investment background and knowledge to give financial advice on investing and trading; just search #FinTok on TikTok. It is great that we have access to all this information at the tip of our fingers, however, the risk is that some may blindly follow the advice without knowing the risks and doing any research. The term for this is “social proof” which is a psychological effect that leads people to conform to and copy what others are doing.
An example of this is the GameStop frenzy which you can read all about here. Some Redditors influenced thousands of traders to buy GameStop stock. This resulted in the stock price soaring in a very short amount of time, after which many sold their holding in GameStop.. This caused the price to then plummet back down, which resulted in some earning huge profits while others suffered big losses.
If it sounds too good to be true, it probably is…
It can be very hard to decide what to invest in and what to avoid when you don’t think you have all the knowledge and that is why it’s important to learn all you can. Franc has an Academy that can help you get started with some basic investing and money management lessons all for free. If there’s one thing you can take away from this article that will help you think twice before jumping onto the bandwagon is doing your research. If you are thinking about investing in something, do your own research, it really doesn’t matter how many people made thousands off the investment.