In the ever-evolving world of investment advice, there are various sources one can turn to for guidance. While some individuals prefer to conduct their own research or consult with experienced investment professionals, there is a growing trend of relying on “finfluencers” – financial influencers who provide investment recommendations through social media platforms such as TikTok. The appeal of these “finfluencers” has been on the rise, particularly among young investors, who are drawn to the accessibility and relatability of their advice.
A study conducted by the BestBrokers brokerage aggregator site analyzed the stock-picking recommendations of the most-watched TikTok videos from 2023. Surprisingly, over 64% of the stock predictions mentioned in these videos proved to be accurate, leading to substantial gains for investors. Notably, recommendations for tech industry stocks, especially those related to artificial intelligence, saw remarkable rallies, such as Nvidia and Qualcomm. While there were losses in approximately 36% of the recommendations, the overall success rate of the “finfluencers” was quite impressive in the first half of 2024.
Investing based on advice from social media influencers may seem risky, but the data suggests otherwise. For example, a $1,000 investment in Nvidia, the top-performing stock, would have grown to $1,630.79 during the period surveyed. However, investing in the worst-performing stock could have resulted in a significant loss. Diversifying by purchasing all stocks recommended in a single video also showed mixed results, with gains from successful picks and losses from unsuccessful ones.
While the success of “finfluencers” cannot be overlooked, financial experts caution against solely relying on their recommendations. There are concerns about the credibility and objectivity of these influencers, as well as the potential conflicts of interest they may have. The lack of regulation and unknown credentials of “finfluencers” raise questions about the reliability of their advice over the long term. Additionally, the motivations behind their recommendations, such as potential payment from companies or front-running tactics, can impact the investment decisions of their followers.
Despite the skepticism surrounding “finfluencers,” experts acknowledge the role they play in spreading financial literacy, particularly among younger investors. Social media influencers, especially on platforms like TikTok, have the ability to make investment concepts more accessible and engaging for a wider audience. However, while influencers can serve as a starting point for investors to learn about investing, seeking professional financial advice from established and regulated institutions is crucial for comprehensive investor protection and long-term financial security.
The growing popularity of “finfluencers” as a source of investment advice reflects a shift in how investors consume financial information. While their success in providing accurate recommendations cannot be denied, it is essential for individuals to approach their advice with caution and supplement it with professional guidance. As the investment landscape continues to evolve, striking a balance between social media influencers and traditional financial institutions may offer investors the best of both worlds.