Latest research from the Financial Conduct Authority (FCA) reveals that young investors are making important investment decisions in a matter of hours, rather than taking the time to check out whether the product is right for them in the long-term.
The survey, which polled 2,000 UK investors aged 18 to 40, found that two-thirds (66%) make investment decisions in less than a day, with one-in-seven (14%) deciding to purchase in under 60 minutes. Only 11% take more than a week to decide if an investment is right for them.
Investing for the long-term can be rewarding, and not just financially. However, while buying into the buzz can sometimes deliver short-term satisfaction, it can also lead to regret.
Despite 63% of people believing that hype meant it was a good investment opportunity, 40% regretted investing in hyped investment products. Avoiding hype and knowing what you are getting into can help you decide if an investment opportunity is right for you.
Lucy Castledine, Director of Consumer Investments at the FCA, commented:
“If you’re considering investing, the very first investment you should make is some of your own time. It’s important to look beyond the hype, especially on social media, and do your research to make sure what you’re investing in fits with your financial goals. Check out our five tips to InvestSmart.”
Investment thinking versus everyday purchases
The research reveals strong parallels between impulse-driven investment decisions and purchases of everyday viral products. When asked more generally about any viral items they had purchased within the last year, crypto was fourth in the list (27%), just behind air fryers (42%), which topped the list, followed by smart watches (32%) and energy drinks. (32%)
Over three quarters (76%) admitted they would likely buy an everyday viral consumer product based on online hype, and nearly two-thirds (65%) acknowledged they had the same attitude to investment decisions.
Reasons for investing in hyped products are similar to those for consumer purchases: missing out on a good opportunity (32%), driven by the desire to feel good in the moment (26%), and wanting to keep up with trends (23%).
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The influence of FOMO and social media
“Fear of Missing Out” (FOMO) also plays a major role. Over half (51%) of young investors (18-40) put in more money than they originally intended due to FOMO and this behaviour often results in riskier financial decisions being made.
Social media platforms are influential: 85% of young investors acknowledged platforms such as Instagram, TikTok, and YouTube are highly influential in their investment decisions, with 43% using these platforms as their primary research tool.
Looking beyond the hype
The FCA is calling on investors to think more carefully before investing in high risk or hyped products, by thinking about their long-term financial goals.
Steve Martin, a behavioural scientist at Columbia Business School and the CEO, Influence At Work commented:
“This important and timely research illustrates the worrying influence that hype and online trends are having on people’s decision making. Playing to people’s fear of missing out (FOMO) is a deliberate ploy designed to increase the attractiveness of a product. Less of an issue if the item is a low-cost consumer product. But spontaneous and hasty decisions about financial investments are concerning due to the risk of potentially regrettable and long-term implications. It’s smart to invest for the future. It’s also smart to avoid being swept along by hype. Sound investing requires sound judgement. When it comes to your money, heat-of-the-moment decisions are best avoided.”
