Why is investing advice suddenly so popular on social media?
The Finfluencer explosion boils down to simple economics: supply and demand.
According to research by CNBC, a whopping 37% of investors who started investing in 2020 or later seek money advice from social media. Just 12% of investors who began in 2019 or earlier do the same.
What that tells us is the tidal wave of fresh, pandemic-era investors wants advice from social media at triple the rate of experienced investors. That demand has been met by a fresh supply of Finfluencer content — some of it good, some of it snake oil.
So why bother even trying to separate the wheat from the chaff? Why not stay off social media entirely?
Should you be getting investment advice from social media?
Investing advice is like the news; it shouldn’t be totally ignored, but it shouldn’t all be taken at face value, either.
Instead, the best approach is to develop a “filter” that tells you what to consume…
Versus what to enjoy as entertainment…
So let’s say you’re browsing YouTube, TikTok, or Insta right now. What are some signs you’ve found good (or bad) advice?
How to spot good investing advice on social media
To preface, the presence of these qualities and qualifications doesn't necessarily mean that the Finfluencer’s tips should be taken as gospel, but rather that their advice should carry more weight.
Experience & credentials
If you’re not sure whether to trust someone’s money advice on social media, Google their name and see their credentials.
If their only credentials are that they have 1.2 million TikTok followers, that qualifies them to discuss how to build a TikTok following, not how to invest your money.
But suppose they’re a registered broker on FINRA’s BrokerCheck. In that case, they have a wall full of finance degrees, and their LinkedIn profile is filled with years of qualified experience handling other people’s capital. Their word instantly carries more weight than someone who got lucky buying Cardano in 2019.
Take, for example, the Invest Like The Best podcast. A quick LinkedIn search reveals that host Patrick O’Shaughnessy, CFA has 15 years of experience as a portfolio manager and four more as the CEO of his own asset management group. Plus, he only invites qualified guests on his show.
Advocating risk awareness
One common thread among quality Finfluencers is that they discuss risk in almost every video.
Take Poku Banks, for example. Here he is telling his 345k TikTok followers to slow down before investing in crypto, factor in the risks of pouring capital into unregulated environments and consider ETFs instead.
Conversely, if a Finfluencer dances around the topic of risk and fixates on earning potential, they’re skipping the veggies for dessert. And just like a Cinnabon, their advice should be consumed in tiny doses — or skipped entirely.
More: Investment risk 101
Unafraid to broach “boring” topics
Genuine money advice can be a little tedious and numbers-heavy sometimes. That’s because the foundations of effective investing — historical data analysis, compound interest, and a lot of patience — just aren’t that sexy to a social media crowd.
Therefore, a good sign of a qualified host or content creator is that they’re unafraid to broach and explain these “boring” topics to ensure their audience is investing wisely — not just having fun or providing them with valuable clicks.
So another way to filter out the phonies is to take a bird’s eye view of their recent posts and thumbnails.
Does it look sensible? Or sensationalist?
How to spot bad investing advice on social media
Phony finance gurus love dangling lifestyle porn — private jets, exotic cars, etc. — in front of their audiences as clickbait.
So, if you come across a sensible-looking channel, dig around in their posts or past content to see if you find something like this:
Experienced finance professionals rarely buy depreciating, six-figure assets in their 20s. Even if they do, they’re even less likely to flaunt them in front of their clients or followers.
Granted, Sebastian Ghiorghiu (the guy who created Video A in my intro) is clearly guilty of this, stamping a shiny Audi R8 in his thumbnail. However, within the first 30 seconds, he tells his followers to “Save and invest and don’t buy things to look cool.”
So he’s either a master of subversion or a hypocrite. But I’m willing to give him the benefit of the doubt.
But the point stands; most of the time, a bright red Lamborghini is also a bright red flag. If someone is using a depreciating asset to market investing advice, well, that’s like a design firm using comic sans in their logo.
“Get rich fast” promises and guaranteed returns
Experienced investors and financial advisors will teach you how to get rich in 30 years.
Phonies will tell you how to get rich in 30 days.
It’s not impossible to get rich in 30 days, but it can’t happen without a high amount of luck or risk. Usually both. And the phonies rarely acknowledge that. They either firmly believe that what worked for them will work for everyone, or they’re selling “the dream” for personal profit via classes or click revenue.
Another red flag is any guarantee of returns. Again, qualified advice-givers will acknowledge that all investments involve some form of risk — from I-Bonds to Bitcoin.
Anyone guaranteeing returns is carrying on the legacy of Charles Ponzi.
Recommendations of specific assets
Recommending a specific crypto, stock, or ETF isn’t necessarily an instant red flag. After all, Finfluencers have to get specific once they get you past the basics.
But a specific asset recommendation is an excellent time to pause and ask yourself some questions such as:
- Why are they recommending this?
- Do they have a vested interest? (Could this be a pump-and-dump?)
- Where is their data coming from?
- Are there other red flags present, e.g., guaranteed returns?
But if you ever feel coerced or seduced into buying a specific asset, that’s definitely time to reconsider the Finfluencer’s experience or ulterior motives.
General things to keep in mind
Before we wrap, here are just a few more things to keep in mind as you consume investment advice on social media:
Everyone’s risk profile is different
One of the advantages of working with a CFA is that they’ll help you determine your risk tolerance. And they'll use it to tailor their services and advice.
Even the trading activity of the biggest Finfluencer of all time, Warren Buffet, shouldn’t always be followed to a T. He can afford to lose $25 billion, but you (probably) can’t.
Popularity ≠ credibility
The Kardashians aren’t famous because they’re astronauts or Oscar-winning actors; they’re mostly popular because they’re popular.
Same can be said of major Finfluencers. Popularity doesn’t mean credibility, and conversely, credibility doesn’t always mean popularity. Some of the most sage investing advice you ever hear may come from a video with 9,000 views.
Diversify your advice
Diversifying your advice can be just as effective as diversifying your portfolio itself.
Even if you get what seems like a hot tip, it’s best to vet it with multiple sources, including your CFA.
The bottom line
I tend to think that the proliferation of “Finfluencers” is a net positive. Even the Lambo-flashing dingbats are doing their part to make financial literacy “cool” and spread awareness of basic investing principles.
But investing advice, in general, can range from life-changing to dangerous.
Therefore, by giving more credence to real experts who aren’t afraid to talk risk and “boring topics” — and treating everyone else like entertainment — you can make better investing decisions.