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This is a message all of us have received at some point. The rise of social media has democratised investing. Anyone with a phone and limited knowledge of investing can become a finance influencer and spread information that may not necessarily be true. But with social media not going away anytime soon, how does one know what information to use and what to avoid?
1. If it is too good to be true, beware: Any scheme that offers unrealistic returns either comes with increased risk or is simply a scam. In such situations, before falling prey to it, we must always ask ourselves “How is the other side making money?”. If there is no clear answer, they’re probably targeting your money in some way
2. Cut out the noise: Social media comes with the caveat of noise – there will be so much information thrown at you, you won’t be able to tell the real from the fake. Trusting your fundamentals and cutting out the noise is an essential skill which all of us need to learn
3. Don’t fall prey to herd mentality: Influencers work on the philosophy that their followers will listen to them, irrespective of what they say. A lot of them have been prosecuted for advising their followers to invest in unregulated crypto tokens, the values of which are significantly lower today. So, don’t listen to everything influencers say – take everything with a pinch of salt
Social media has definitely changed the investment landscape, providing investors with access to information, and real-time market insights. However, the impact of social media on investment decisions should be approached with caution. Investors must strike a balance between leveraging the benefits of social media while remaining cautious against misinformation, emotional biases, and herd mentality. By combining the power of social media with traditional investment research and analysis, investors can make more informed decisions and navigate the digital landscape successfully.
