Social media ‘finfluencers’ on the rise, but come with risks in personal finance

power of 56% of finfluencers to potentially do harm is in the majority, fortunately. Unfortunately, their information turned out to be worse than no advice at all. These “unlucky” finfluencers generated negative alpha, outperforming their benchmark by a whopping -0.6%. That’s a 3.2% spread between the harmful and helpful finfluencers.

It seems that the succumbing followers of these finfluencers have made an unwise choice, as the data demonstrates. Not only do these influencers offer little to no value with their advice, but their guidance can lead to the loss of hard-earned money.

The paper also looked into the reasons behind followers continuing to engage with these financially irresponsible individuals, spinning their wheels to nowhere. They found that followers disproportionately liked and shared tweets from the unskilled finfluencers over their more adept counterparts. There wasn’t just a small discrepancy; there was a huge gap between the two types of influencers in terms of engagement and reach. This conclusion raises concerns about the potential negative impacts of a lack of financial literacy and naivety among everyday investors.

It’s not surprising that the SEC has put a target on the back of these social media finfluencers. They have increasingly come under scrutiny, and some have even found themselves in hot water for promoting shady investment schemes and engaging in market manipulation. Authorities have issued multiple warnings to investors to be wary of advice provided on social media, reminding them of the risks and ulterior motives that may not be readily apparent from these self-proclaimed experts.

In conclusion, while social media offers a plethora of benefits, it is essential for individuals to approach financial advice from online influencers with a critical mindset. Not everyone dispensing advice online has the qualifications, knowledge, or ethical standards to safeguard your financial interests. Before taking investment recommendations at face value, consider the credentials, experience, and regulatory compliance of the person providing the guidance. It’s crucial not to fall prey to the allure of quick riches and instead exercise caution and due diligence when venturing into the world of social media for financial advice.