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It can be hard to look away from the constant stream of financial success stories and recommendations on TikTok, YouTube, Reddit and other social media platforms.
Users on WallStreetBets and other forums bang about the tens of thousands of dollars they have made over a short period of time by buying up the “meme stocks” that hedge money has pledged. It’s clearly a strong story: Hollywood is already making a film about the portfolio of fraudulent investors who have raised the price of GameStop shares.
When it comes to deciding how to spend the hard earned money, however, such drama and drama can be a red flag.
“Good investment advice is difficult,” said Barbara Roper, director of investor protection at the American Consumer Federation. (She ticked off on some of the time-tested proofs: Invest for the long term. Multiply. Use each other’s money at a low price.)
To be sure, many of the videos on TikTok Personal Finance, viewed by more than 3.5 billion people, contain helpful tips on budgeting and climbing out of credit card debt. But it is often satisfied that promises wealth faster which gets more clicks.
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As a result, the platform is overflowing with creators making market prognoses and encouraging you to buy specific stocks or cryptocurrencies so you can kill as they are.
Don’t expect them to be able to copy their results, experts say.
“People will never recognize that they are making profits based on fortune,” said Andreas Park, a finance professor at the University of Toronto.
Park research has found that the average day trader loses money because they tend to buy and sell too late, and don’t have to do either for a reason good.
On the other hand, given how sad some may feel about hedge funds, they weren’t betting against GameStop shares for nothing, Park said. He pointed out that the value of the series of video game stores is expected to decline as malls across the country shutter and people make more of their games purchases online, from the comfort of their home.
However, people can put a lot of credit in the advice they get online, especially when it is found on forums or platforms that they often feel and like.
“Social media gives you a glimpse of intimacy where it doesn’t exist,” Roper said.
In reality, though, you have no way of knowing if the person on Reddit is telling you to invest in GameStop actually dumping their own shares while they speaking, Roper warned.
And while there are ways to check out traditional financial advisors, it can be impossible to find out the secrets or conflicts of interest of someone who is spouting advice online.
On the internet, it can be helpful to go against your instincts, said Dr. Brad Klontz, a certified psychologist and financial planner. Market bubbles are powered by a herd mindset, which social media only strengthens, he said.
“For thousands of years, if you were left with the tribe, you could die,” said Klontz, who is also a practicing professor of financial psychology and behavioral finance at Creighton University’s Heider Business College. “So when we feel that the tribe is moving away and we are not with it, it causes a panic.
“Be aware of how we are stringed,” he said. “It will keep you from making the classic financial mistake of buying high and selling low.”