New Money Review podcast
Meme investing risks your financial health
Britain Thinks recently conducted and published research on self-directed investing on behalf of the UK’s financial services regulator, the Financial Conduct Authority.
One of the consultancy's key findings is that self-directed investors—those making investment decisions on their own behalf, without the help of a financial adviser—are at risk of overconfidence and of suffering financial harm as a result.
This risk is potentially amplified by the role of social media in encouraging herd behaviour, say the researchers.
“When using social media, self-directed investors are often at risk of following the algorithm because they are being served content,” Rachel Rowlinson says in the podcast.
“They get the sense that there’s this big movement, that everyone is getting involved in this one thing and they don’t want to be left behind,” says Rowlinson.
“A big thing for this new group [of self-directed investors] is they see a lot of content, a lot of news about something as a short-cut to saying, ‘If people are talking about it, it must be either a good investment or a shortcut to safety’,” Rowlinson goes on.
“Something like cryptocurrency can be seen as massively overvalued, but they are not really aware of that.”
“They are unaware that, because they are looking at this content, the algorithm is actually tipping the scale.”
In the podcast, Carol and Rachel discuss their key research findings with New Money Review editor Paul Amery:
- Why self-directed investors’ journeys are complex and highly personalised
- Why self-directed investors tend to follow one of three archetypes—‘having a go’, ‘thinking it through’ and ‘the gambler’
- How emotional and social motivations often drive self-directed investing
- Why self-directed investors investing in high-risk, high-return investments may have too much confidence in their abilities, risking financial harm
- How a more diverse audience is getting involved in self-directed investing
From finance to politics, law to anthropology, technology to crime, the New Money Review podcast—‘the future of money in 30 minutes’—offers its listeners insights into the rapidly changing world of money.