In today’s day and age, we get access to almost all the information we need at the click of a button or a swipe of our smartphone. What was once hidden knowledge, closely guarded by a few, has slowly become available to the masses. This applies to most fields, finance being no exception. Today, we get access to the words of Warren Buffet and the books of Benjamin Graham through a simple download. And if you are too lazy to read them, you can just click on a youtube video, an instagram reel or a twitter thread that explains their concepts to you! This is where social media influencers come in.
Is it good to learn about finance from social media?
There is nothing wrong with browsing social media and learning about financial markets. It is a great way to stay informed on the markets if one does not have the time to read through various concepts and understand instruments by themselves. Yet, there are a lot of disadvantages to this as well, especially for first time investors. We will go through both the pros and cons below:
- Good starting point: For persons that are new to the finance space, learning about the markets on social media can be a good starting point. Depending on who you follow, you will get a simplified understanding of the markets. This proves to be a stepping stone in understanding the markets better.
- Summaries: For a working professional, it may be hard to track markets on a daily, weekly or even monthly basis. Social media summaries can be the answer to tracking market events to stay up to date.
- The Information is Free: Generally, there is no fee that you need to pay for their advice. Hence, it is useful for beginners who want to learn about the basics of financial markets but don’t want to shell out money to learn about the same.
- Overconfidence bias: Social media followers tend to attain celebrity-like status, especially if they are proven right a few times. But in the grand scheme of things, many of these influencers are new to the markets themselves and are likely to have their own learning curves. Newer investors might take unnecessary risks or invest in instruments they don’t fully understand by simply following their favourite influencer. This could go one of two ways - a) The investor makes a loss and learns a lesson. b) The investor makes a profit and is now falling into the trap of overconfidence bias. This might make them follow their influencer blindly, leading to a bigger loss in the future.
- Lack of in-depth or practical understanding: While social media can educate you about financial instruments, it is unlikely that you would get an in-depth understanding of how each of these instruments function, their hidden costs, taxation angles, and which instrument is best suited for you. This could lead to inefficient asset allocation and poor decision making.
- No Liability if wrong: If an investment suggested by a social media influencer goes wrong, they are in no way liable to you, the viewer. This was seen in recent times, where many influencers and even celebrities pushed forth digital assets as a good investment opportunity. Fast forward one year, and most investors lost money in these instruments, but the ones that pushed this idea to them are not liable in any way.
- Lack of true experience managing money: There are many credible influencers who have had careers in finance and by and large, educate their followers well. Yet, there are also influencers that do not have any experience in managing money. They have not witnessed the various pitfalls of the markets, such as multi-year bearish trends.
- Recency Bias: Recently, many influencers are seen mocking Fixed Deposits as an instrument, given its low rate of return compared to stock markets. They do not realise that Fixed Deposits are some of the safest instruments you can invest in to safeguard your money for important expenses. This shows the lack of understanding of various needs that different investors may have.
- Updates: The financial world is constantly evolving. Content put out by an influencer may not be relevant in a few months time.
- Paid influence: Influencers earn a lot of money from sponsorships. They can be sponsored by people to push forth instruments that might not be the best in their category. Hence, it is wiser to make use of their information with a pinch of salt.
Financial Advisors - Are they worth the Fee?
Due to the following reasons, consulting a financial advisor is recommended over taking free advice from influencers:
- They create a plan specific to you: Financial Advisors take into account your current financial situation, risk appetite, long term goals and more in order to craft a plan that works for you. This helps you achieve an ideal asset allocation that gives you the best chance of hitting your financial goals in time.
- Up to date: The markets sometimes resemble a jigsaw puzzle that is constantly shape shifting. Financial Advisory firms have a team that is constantly monitoring the market, day in day out, for the benefit of its investors. This is crucial for staying ahead of the curve and making the right investment decisions.
- Advisory Fee: Paying advisory fee means that advisors are not required to take back handed income in order to push bad products. This means they are looking out for the investors best interest at all times. The advisory fee you pay will likely be made back by avoiding losses that you might incur by investing by yourself.
The financial market can be an intimidating place and can easily hurt your finances if you do not understand what you are getting into. While social media influencers can be a stepping stone into learning about the markets, it is advisable to take the help of qualified financial advisors before putting your money into play. This is important so as to have your long term financial security in place versus making short term profits through an influencer’s recommendation. If you are new to the world of investments, you can get started by learning about the market and opening your demat account online.
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