With friends like these, who needs enemies
There are few things that have escaped the transition to Zoom since the beginning of the pandemic; investment advice or ‘tips’ from friends are no exception.
Picture the scene: you’re settled in a comfortable chair, favourite tipple in hand, some snacks for light grazing on the table in front of you, and your friend is waxing lyrical about Tesla, Bitcoin, or (insert name of latest ‘hot tip’ here).
Where once this topic of conversation might have been the reserve of dinner party discussions – and even then, only dinner parties with a certain type of guest in attendance (you know the sort, late-30s upwards, a decent amount of disposable income, knows somebody who knows somebody who works in investments). Now there is seemingly no end to the channels through which friends, or even mere acquaintances can share their well-meaning advice.
Investment ‘tips’ from every angle
Take the wallstreetbets Reddit forum, which was attributed as being responsible for driving struggling retailer GameStop’s shares up more than 1,900%, during January 2021.
Then there is Instagram: the place we all go for some aesthetically pleasing relief from the woes of the world, or to share pictures of our latest lockdown bakery attempts – correct? Not anymore. There are now multiple hashtags commonly associated with investing on Instagram and Twitter: #stocks, #startinvesting, #realestate and #crypto to name but a few.
Even TikTok, the virtual playground of Generation Z (maximum age 24) is not immune, with the inclusion of content tagged #investing
Why investment professionals exist in the first place
Ironically, if someone you know does work in investments or financial advice/planning in the UK, they will be well aware of the drawbacks in encouraging people to plough into a single investment idea without thorough knowledge of their individual circumstances, risk tolerance and time horizon.. They are also likely to be regulated to prevent them from taking a haphazard approach and cavalier attitude to other people’s money.
Successful investing management is about understanding how these factors play into one another, in order to provide a suitable approach tailored to you.
At Church House Investment Management, we look at no fewer than 12 different types of risk when assessing someone’s appetite for tolerance to investing. A couple of the most relevant here are ‘stock specific risk’ - the impact of investing in a single company that then experiences a fall in value, and ‘concentration risk’ - the danger of not diversifying a portfolio and instead only investing in one asset class, for example equities.
In many ways, the surge of interest in investing among swathes of the formerly disinterested should be encouraged. After all, the earlier people recognise that funding their life’s ambitions is unlikely to be achieved through a cash savings account and a state pension alone, the better. Costly aspirations such as owning your own homes, putting your children through university or travelling the world in retirement certainly argues for a more proactive approach.
But we are nervous that this new-found interest will quickly evaporate once a novice investor gets their fingers burned by a stock tip heading in one direction, south.
So, the next time a friend comes to you with a “fantastic investment idea” that you “just can’t miss out on”, think of that age old adage – keep your friends close, but your wealth manager closer!
The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future. performance.