Would you turn to Reddit for investment ideas?
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
Should I borrow money to buy Nvidia stock? What could rate cuts mean for the performance of different market indices? And with all the effort share trading requires, would sticking to passive funds be a better bet?
This is a small selection of live discussion threads about investing on Reddit, which was this week named as the most popular online platform for finding investment ideas in a survey carried out by none other than Hargreaves Lansdown, the investment platform.
It seems like be a cheap shot to remind readers of the regulatory hoo-ha over Neil Woodford’s doomed UK equity income fund remaining on the Hargreaves “best buy” list of fund ideas until days before it was suspended from trading. But it proves that getting your investment ideas from regulated sources is no guarantee of success either.
We hear a lot of warnings about the suitability of investment “advice” provided by unqualified and unregulated experts on social media platforms including Instagram and YouTube, but this is clearly wasted on the general public who are lapping up financial content.
In 2021, when Hargreaves last conducted this poll, 43 per cent of 18-34 year olds surveyed said they got their money knowledge from the websites of financial companies. Today, that figure has dwindled to 29 per cent, but the number using Reddit for investment ideas has jumped from 17 to 26 per cent, while TikTok has gone from 12 to 20 per cent.
Yet the huge influence social media posts can have on investors is worrying the UK’s Financial Conduct Authority, which has mounted a high-profile crackdown on its worst excesses. From prosecuting celebrity “finfluencers” who promote unauthorised financial trading schemes to highlighting the growing dangers of scams on its InvestSmart website, its actions are commendable — though what one domestic regulator can do to police a global content-generating machine is clearly limited.
But to assume that all social media investment content is malign or puts consumers at risk of financial harm is not true. As interest in traditional corporate financial sites wanes, I’d argue there are lots of learning points for firms and regulators alike in the quest to regain some influence.
For one, social media posts fill a vacuum created by the advice gap. In the UK, it has been estimated that 39mn adults are in need of financial advice, but are unable or unwilling to pay for it. Financial literacy levels in the UK are low; most schools fail to teach children anything useful about money and not everyone has financially savvy parents.
“Financial advice firms want people with £1mn in assets; they don’t want someone just starting out with £100 a month to invest. But that’s where I operate,” says Damien Jordan, who is better known as Damien Talks Money to over 200,000 people who follow his YouTube channel.
A big part of the 35-year-old Mancunian’s success is his relatability — he’s young, casually dressed and his accessible and jargon-free explainer videos mean he comes across like a smart older brother you could chat to about money at a football match. A phrase he often hears from his followers is “I didn’t think investing was for people like me”. A financially qualified southerner in a suit might spout the same messages, but would lack his authenticity and connection with his audience.
The high cost of regulatory requirements means most advisers shun the mass market, but Jordan also blames films like the Wolf of Wall Street for glamorising trading and creating the perception that investing is only for the richest. “There’s not many films about index funds, for sure, but if there was, following the life story of someone who invested £50 a week could end up with them having a million pounds.”
The interactive nature of social media is another huge draw. The ability to comment on posts, ask and respond to questions in online discussion forums such as Reddit, creates a community of investors who are coming to learn, but also share their own knowledge. This is in stark contrast to the “we can’t be seen to be giving you financial advice, so we’re saying nothing” stonewalling of consumers by regulated financial providers in the UK, though I hope moves to redraw the advice-guidance boundary will ease this.
The questions I mentioned at the outset are from the r/Investing subreddit. With nearly 3mn members (including me) it is smaller than Wall Street Bets, which exploded following the GameStop meme stock phenomenon, but enables inexperienced investors to consult the collective wisdom of their older and more battle-hardened peers.
While the anonymity of social forums makes life easier for scammers, it also makes it less embarrassing to ask “stupid questions” — which often are anything but. Yes, there are many posts from people expressing a desire to borrow money and buy shares in Nvidia, but there are also some excellent answers to questions such as “are you familiar with what a margin call is?”
I am sure investor readers have learned a great deal from their mistakes. Learning from others’ mistakes, and how they evaluate their stock picking decisions definitely has a value too. Redditors on this forum frequently share doubts and misgivings about their own portfolios, the wider market and the merits (or otherwise) of specific stocks. Of course, there is the risk that taking ideas from this forum could cause people to lose money, but there are high-profile disclaimers and an emphasis is placed on the difference between investing and gambling.
Another reason I think Reddit scores so highly among investors is its ability to self-police. Anyone shilling discount codes for trading sites gets an automatic and permanent ban — quite a contrast to Instagram, where spammy comments abound on finance and investing posts.
The final lesson I think the finance world should take from social media content creators is their love of the visual medium. Social media is where people come to watch and educate themselves for free about all kinds of life skills including DIY, cookery, make up and now money. Watching someone explain basic investment concepts can resonate more powerfully than the written word — especially in an area like finance where official communications are often dreary and full of jargon. The Consumer Duty has helped with this, but we still have a long way to go.
Jordan says his most popular videos are ones with “hand holding, practical content” such as following the clicks to set up an online brokerage account with one pound. “Most people in Britain don’t know what a stocks and shares Isa is,” he says. Investment subreddits tend to have more of a US skew, yet are similarly packed with questions about tax-advantaged methods of investing, plus how to keep investment fees to a minimum.
Certainly, getting investment ideas from social media is never going to be problem free. But the popularity of this content, and its ability to reach new audiences shows how it could help solve the wider problem of people not investing enough, or engaging with their finances.
Claer Barrett is the FT’s consumer editor and author of the FT’s Sort Your Financial Life Out newsletter series; claer.barrett@ft.com; Instagram and TikTok @ClaerB
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