Fact-checking TikTok investing channels (TL;DR)
- 60% of investors under 40 report getting investing advice from forums and social media — and 24% specifically from TikTok
- But with zero quality control — and popularity is driven by watchability, not accuracy — the investing advice on TikTok can range from insightful to false to downright illegal.
You can retire a millionaire by contributing as little as $100/month to a Roth IRA
Gil Oliveira 120.8K followers
“You can guarantee that you’ll retire a millionaire in two easy steps,” says Gil Oliveira. “Step one is to open a Roth IRA.” To do so, Gil recommends you do this with the M1 Finance app, which we’re a fan of.
“Step two is to invest at least $100 a month,” he says. “As long as you start by age 25, 12% interest for 40 years will make you a millionaire. If you start at 18, you’ll retire with $2.2 million.”
Verdict: True, but misleading
Gil’s numbers check out. If you invest $100 per month at 12% interest for 40 years, you’ll retire a millionaire. The challenge, however, is building a risk-adjusted portfolio that generates an average 12% APY for 40 years.
Gil recommends you go heavy on the Invesco QQQ ETF. QQQ tracks the Nasdaq-100 Index, which contains the Nasdaq’s 100 largest non-financial companies. “They've averaged 15% returns for the last 20 years,” Gil says.
But investing 100% of your Roth IRA into a single ETF — even a high-performing index fund — is not advisable. Most experts recommend a diverse array of stocks, bonds, mutual funds, and ETFs — all carefully balanced based on your risk tolerance. The Nasdaq-100 has been quite a bit harder than the S&P 500 during 2022's bear market.
There’s a reason why Roth IRAs typically deliver “just” seven to 10% APY: when you diversify and buy bonds, the expected returns drop — but the risk drops even lower.
So to avoid putting all your eggs in one basket, build a more diverse M1 Pie.
Savings bonds can generate 9.62% APY virtually risk-free
Humphrey Yang 3.3 million followers
In this TikTok, A-List “Finfluencer,” Humphrey Yang explains that “You can now get a 9.62% return on your money, virtually risk-free, by buying a savings bond.
There are, however, two caveats. You can only invest $10,000 per calendar year and are charged a three-month interest penalty if you withdraw within five years.”
Verdict: True
99.9% of the time, any claim that you can generate 10% APY risk-free from a specific investment is a scam. At best, it results from someone severely misunderstanding how risk works.
But Humphrey’s tip falls within the rare 0.1% of cases. Series I Savings Bonds, or I Bonds for short, are semi-fixed rate bonds that change every six months based on the current inflation rate. And since the current rate of inflation is so high, the I Bond rate really is 9.62% until October 2022.
Two additional FYIs Humphrey didn’t mention, presumably due to time:
- You can’t withdraw from I Bonds for the first full year
- You can invest an additional $5,000 per year from your tax returns
But otherwise, this is an excellent tip and a good investment option for anyone looking to hedge their capital against inflation with near-zero risk.
More: How to invest in bonds: diversify your portfolio
You can weather a recession through diverse, long-term holdings
herfirst100k 2.1M followers
“If you’re investing with the long term in mind and you’re diversifying your portfolio, you will be able to weather these storms,” says Tori Dunlap, aka herfirst100k, aka the Financial Feminist.
In her podcast, linked from her TikTok, she explains that choosing to do nothing during a recession isn’t laziness or complacency; it’s a bonafide strategy.
That’s because patience pays off in all forms of investing. Doesn’t matter if it’s an investment in your physical health, your mental health, or your stock portfolio — give it time.
“You don’t expect to look like f*ing Dwayne “The Rock” Johnson after one gym visit. You don’t expect your anxiety to go away after one therapy session. It’s the same thing with investing; you’re expecting worthwhile results after a significant period,” she explains. “What you shouldn’t do is dive in and try day trading/timing the market. Those were the investors who “lost everything.”
Verdict: True
Even if your portfolio is down during a recession, you haven’t actually lost anything until you’ve sold or a company you’re invested in files for bankruptcy.
That’s precisely why the two best ways to weather a recession are not to sell and diversify.
Not selling is easy enough since it requires no action on your part (aside from resisting temptation). But if you’re concerned that your portfolio may not be diverse enough to weather the storm, it’s considered safe, even wise, to buy up some “discounted” index funds during a recession.
More: How to prepare for a recession
The best first step for new investors is to maximize your 401(k) match
clevergirlfinance 1,159 followers
flynanced 14.8K followers
“Here are some ideas of where to start investing,” says Carly of Clever Girl Finance. “Number one: begin investing money in employee-sponsored investor accounts.”
Carly wasn’t the only one advocating for 401(k) matching. Cinneah of Flynanced took it a step further, posting the most bumpin’ 401(k)-related video of all time.
“Here’s the secret to how I grew my 401(k) by $45,000+ in 2021: Contributed $19,500 from my paychecks and received an employer match of 6% of salary,” Cinneah says.
The rest, she claims, came from picking the right index funds. But step one was key.
So are these women right? Is maximizing your employer matching not only good, but also essential as a first step in a wise investing strategy?
Verdict: True
Anyone who doesn’t maximize their employer match is simply leaving money on the table. Unless you absolutely need that capital in the short-term to make ends meet, it’s a no-brainer.
Let’s say you make $100,000 and your employer will match the national average of 4.7%. That means you put in $4,700, they put in $4,700. That’s a guaranteed 100% ROI, overnight. Not even the most successful speculative investments in the world can match those returns.
More: How to invest for retirement
You can easily win on the stock market by copying the investment portfolios of rich people
Jag 44.7K followers
“Sweet — I just copied Bill Gates' investment profile,” says Jag.
He goes on to explain how anyone with more than $100 million in stocks must declare their holdings each quarter via a 13F filing, implying that you can use that information to pick your investments, too.
“Chances are that billionaires have access to a lot more secret information, so it’s interesting to see where the big money is going,” he says.
Verdict: Partially true but misleading
Let’s start with what’s true.
Yes, any institutional investment manager with more than $100 million in assets under management (AUM) must file Form 13F with the SEC on a quarterly basis. To illustrate, here’s a breakdown of Berkshire Hathaway’s 13F from Q1 2022.
Now, onto the troublesome bits.
For starters, the implication that billionaires are successful because they have access to “secret information” is — dare I say — a little unfair to billionaires. It’s saying they’re reliant upon insider trading when in reality, many fund managers are just good at interpreting the data.
Then there’s the implication that you should copy the investment portfolio of highly successful traders. That sounds logical, but in practice, you should never copy the trades of someone with a different risk profile than you.
To illustrate, anyone who bought Wells Fargo & Company (WFC) or Liberty Latin America (LILAK) when Berkshire Hathaway did has lost nearly half of their investment. To Warren Buffett’s firm it was a calculated risk that they could afford; to the average American investor, it wasn’t.
Instead of following a bulletproof superhero into a firefight, work with your own financial advisor or robo-advisor to come up with an investment strategy that fits your personal goals and risk tolerance.
Long-term crypto investors always win
Danny Devan 704.1K followers
In a short-but-dense TikTok, crypto Finfluencer Danny Devan highlights some similarities between the 2018 crypto crash and the 2022 “crypto winter.”
He describes how both occurred during times of rising interest rates, high-level hacks, and two years before the next halving.
“Is this a coincidence?” he asks his 698k followers. “Either way, long-term investors always win.”
Verdict: False
Some long-term investors will win, some won’t.
While HODLing is generally a more advisable strategy than day trading, there’s no 100% guarantee that any long-term investment in cryptocurrency will see positive returns.
As Danny himself reminds us in this very TikTok, investors in BitConnect and TerraUSD/Luna lost nearly everything. And although experts can’t quite agree on whether crypto is a bubble ripe for bursting, the market is definitely facing some big unknowns in the near future.
Renewed regulatory pressure, the rise of central bank digital currencies (CBDC), and Bitcoin’s unsustainable power consumption may prolong the crypto winter — perhaps even indefinitely.
Alternatively, the Lightning Network and 2024 halving may give the market renewed life.
In a market as speculative as crypto, the only certainty is uncertainty. Needless to say, HODLers shouldn’t let a long horizon give them a false sense of security.
More: How to invest in cryptocurrency
Google’s stock split will cause your investment to double in value
Armando Pantoja 58.6K followers
“This is huge news” exclaims Armando Pantoja aka Tall Guy Tycoon in reference to Google’s upcoming stock split on July 15th, 2022.
“Based on history, I can expect Google to double here in the next three to six months,” he says.
He goes on to say that anyone who missed the Tesla or Apple split, now’s your chance to get in “before it rapidly, rapidly rises.”
Verdict: False
While stock splits can create potential, there's no guarantee of performance.
According to BofA Securities, ever since 1980, stocks that have announced stock splits have gained an average 25% over the next 12 months compared to the S&P’s 9%.
But that isn’t necessarily due to the split itself; instead, it's due to sustained performance that justified the split in the first place.
Furthermore, one of the key reasons companies do a split is to make shares more affordable.
But now that mainstream brokerage platforms are selling partial shares, the need for a split — and therefore, the pool of hungry investors eagerly awaiting a split — are both diminished.
In summary, nobody should “expect” Google share prices to double in value after the split, and especially not because of it. That being said, the sustained performance that precipitated the split is likely to continue.
You can save on a down payment by listing rental properties as vacation homes
KingKhan 112.8K followers
King Khan, the Ferrari-loving real-estate influencer, starts by showing you an AirBnB he claims to have paid $700 a night for.
“If you take $700 times 30 days, that’s $21,000 a month,” he says.
But how would you cover the down payment on a $750,000 house?
Khan says when you apply for a mortgage, “Don’t tell them that it’s going to be a rental, instead tell them that it’s your secondary vacation house. That way you’ll only have to put 10% down.”
“The average American salary is $54,000 a year,” he says, so “Just by renting this house out for three months out of the year, you make $63,000. BOOM!”
Verdict: Illegal
Lying on a mortgage application about a property’s intended usage is a common form of fraud called Occupancy Fraud.
As King Khan illustrates, people do it to score lower interest rates, lower down payments, or both. And when they’re caught “the results are not pretty,” writes Kenneth R. Harney in the WSJ.
Lenders can demand full, immediate payment of the entire loan amount – and if (and when) the borrower can’t deliver, they move to foreclose. Jail time isn’t unheard of.
As for King Khan’s math, a $700/night AirBnB stay would only pay out roughly $400 after host fees, cleaning, and other expenses were factored in.
But the larger issue facing aspiring AirBnB hosts is that major cities are now cracking down. For example, Atlanta now requires a permit to operate a short-term rental — and 97% of the city’s AirBnB hosts don’t have one.
That’s not to say you can’t profit from investing in a rental home, just that this isn't the way to go about it.
More: How to invest in real estate
The only way to confidently profit from NFTs is to get whitelisted
King Kyle 307.2K followers**
“The only way to make money in the NFT space confidently is to get whitelisted for the project and mint from the beginning,” says Finfluencer King Kyle, who somehow manages to sound cynical and bullish on NFTs at the same time.
“Once the floor rises, you sell for higher, then move on,” he says. “Rinse and repeat.”
For those less familiar with the NFT market, a “whitelist” is a special list of an NFT project’s most dedicated followers. “Whitelisters” are often hand-picked by the project’s creators and are first in line to mint, aka receive new NFTs.
So basically, what Kyle is saying is the best way to profit from NFTs is to work your way to a creator’s trusted inner sanctum, get the NFT as a reward, and flip it on the secondary market for a high profit.
Verdict: True, but misleading
Kyle’s message is true on a fundamental level, but it leaves out a lot of essential YSKs (You Should Knows).
Statistically, it’s true that whitelisters have a much higher chance of making a profit. A study by Chainalysis found that 76% of whitelisters made money flipping their NFT, compared to just 21% of the non-whitelisted. “A very small group of highly sophisticated investors rake in most of the profits from NFT collecting,” they discovered.
But what Kyle glosses over is just how difficult it can be to be chosen for a project’s whitelist.
“I’ve seen people spend all day and all night attempting to level up servers” reports Kimberly Gedeon in Laptop Magazine. NFT creators may also ask their whitelisters to send them up to $700 in advance to cover minting fees — at which point you’ll have to wonder whether you’re getting scammed by a rug pull.
Even if you’re not, there’s absolutely no guarantee that a secondary market will exist for your specific NFT.
In the end, when you factor in the hours required to make it to the whitelist — and the risk of a scam/poor secondary market — you might wonder whether an index fund is a better overall investment.
The bottom line
Overall, if someone asked me “Should I get my investing advice from TikTok?” I’d say no. Get your advice from someone who has a fiduciary duty to you, like your CFA.
At the very least, run any outside advice through your CFA for a qualified, professional opinion before making any big trades. However, if you want to make her laugh, show her some TikTok investing videos.
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