Do you drive the route in the new “Wild West”?
It seems that a new generation of younger investors is doing just that.
They are stepping on lawless territory by making their own decisions, investing their money without financial advice, and engaging in high risk investments. They try their luck with stock market offers that they don’t understand, or pour parts of their assets into crypto currencies such as Bitcoin, Litecoin or Ripple.
Why is this happening? There are two reasons.
First, they are won over by scintillating ads and flamboyant claims on social media talking about the fantastic returns of a small number of people (often with celebrities) backed up by fantastic stories from social media influencers.
Second, investment apps now available make it easier to do your own financial affairs without professional advice and without awareness of the risks you are facing yourself. You can pour a few thousand of your savings into a new fad from the comfort of your seat on the bus into town.
These investors are typically under the age of 40 and mostly look for their tips and news on YouTube and other social media.
They point out to researchers that they are doing this to “pay their money and take their chance”.
Couldn’t they just buy a lottery ticket instead of risking thousands? The lottery gives you practically an equal chance of hitting the jackpot whether you join or not, but at least you will only lose a few pounds!
They also do so for the prestige of owning shares in the companies or buying units of the virtual currency everyone is talking about. So it’s a cross between a boat in the markets and something to brag about to friends on Facebook.
This is not the best financial strategy.
Here are the numbers (according to results in an FCA report earlier this month titled “Understanding Self-Directed Investors”): Over a third (38%) of Wild West investors said they were thrill seekers and admitted to competition and novelty seek speculation instead of thoughtfully investing in lower-risk, long-term investments that will allow their money to grow more reliably, or to build up their retirement benefits.
When asked about the top three reasons for their decisions, none of these groups gave a single reasonable or functional reason to invest.
Over four in ten did not see losing money as one of the risks of investing when the reality is that all of their capital was at risk.
Almost four in five said they would make decisions based on gut instinct and rules of thumb. The two statements they agreed with in the study read: “I trust my instinct to tell me when it’s time to buy and sell” and “There are certain types of investments, sectors, or companies that I think it’s safe. ”
There is that alarming word again – “bet”.
At the same time, nearly two-thirds said that a significant loss of investment would have serious lifestyles both now and in the future.
The official advice from the Financial Regulator to these individuals consists of five questions about your investments.
Am I comfortable with the risk? Do I fully understand this investment? Am I protected if something goes wrong? Are my investments regulated?
And my personal favorite: should I get financial advice?
So think about what John Wayne didn’t show us before you buckle up your six-guns and hit the track: you may not end up as a hero of the Wild West.
You could end up losing it all and being carried in a box of the financial equivalent of Boot Hill.
:: Michael Kennedy is an independent financial advisor and pension specialist and can be contacted at 028 71886005. More information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com