Why You Shouldn’t Trust Social Media Influencers
The internet is an incredible place filled to the brim with facts, figures, reports, and opinions. It provides a whole world of information right at our fingertips, giving us access to knowledge unlike any generation before. However, to successfully navigate those abundant resources requires some critical thinking.
We’ve all heard the warning “don’t believe everything you read on the internet.” It’s fantastic advice, especially when it comes to important topics like personal finance or healthcare, for example.
The unfortunate reality is that many “finfluencers” - financial influencers, that is – don't have the background or understanding to make them qualified to dole out the advice that they spread. While that lack of expertise is sometimes inconsequential, other times it can be hugely impactful for the unassuming reader.
The Reality of Financial “Expertise” in Social Media
Social media holds a significant role in modern society. We turn to social media to connect with friends, to research brands, to ingest news and information, and to seek advice.
However, we can’t forget that posting on social media and becoming an influencer doesn’t require any sort of qualifications. If you woke up tomorrow morning and decided you wanted to build a social media brand dedicated to giving out neuroscience tips and tricks, or fashion expertise, or information on 1600s French cuisine, there’s nothing standing in your way.
Articles, blogs, podcasts, videos, and social posts are used to generate a profit for individuals with a large following. While there are most definitely some influencers who are dedicated to only providing high-quality, accurate advice, it shouldn’t be assumed that any influencer with a large following automatically knows what they’re talking about. Some influencers have motives that don’t include educating their audience, and expertise isn’t required to become popular. All it takes is consistency and effective branding.
Skilled, Unskilled, and Anti-skilled Voices
A recent paper by the Swiss Finance Report took a look at the world of online financial influencing and uncovered some unsettling results.
They used data from over 29,000 finfluencers on the platform StockTwits, a financial social media site. The then grouped those financial influencers into three distinct groups:
Skilled finfluencers whose advice generated 2.6% monthly abnormal returns
Unskilled finfluencers whose advice had little to no impact on investor returns
Anti-skilled finfluencers whose advice resulted in –2.3% monthly abnormal returns
Of the financial influencers studied in the report, 28% were found to be skilled, 16% were unskilled, and 56% landed in the anti-skilled grouping. That alone is startling.
However, the truly worrisome takeaway from this report is that those anti-skilled finfluencers are the ones with the largest following. “Anti-skilled [financial influencers] have more followers and more influence on retail trading than skilled finfluencers. The advice by anti-skilled finfluencers creates overly optimistic beliefs most times and persistent swings in followers’ belief bias.”
In fact, researchers found that following an investment strategy that was directly contrary to the recommendations of the anti-skilled finfluencers would yield a 1.2% monthly out-of-sample performance.
The most important takeaway for those interested in investing and expanding their financial literacy is that financial influencers are not always reliable sources, and the size of an influencer’s following does not speak to their qualifications or the quality of their advice.
How to Make Informed Financial Decisions
Like we said before, the internet is a remarkable tool filled with an astounding amount of information. While some of that information is not so trustworthy, there are a wealth of sources that provide their audience with informed and accurate financial advice.
It all comes down to vetting your sources and determining what information is trustworthy.
Apply Critical Thinking
When ingesting advice online, it’s important to take a moment to pause and question the source of that information. What qualifies this person as an expert? Are those qualifications legitimate? What does their past performance and track record say about the quality of their advice?
It’s important to ask questions like these that are directly relevant to the quality of the content, rather than relying on potentially unrelated factors like the size of an influencer’s audience.
It should also be noted that when something seems too good to be true, it very often is. The paper by the Swiss Finance Report found that “skilled influencers were less active and also tended to take more negative positions. The anti-skilled most often created overly optimistic beliefs.”
Essentially, remember to employ critical thinking and look into your sources before acting on any financial advice you find online. Just because you want to believe a piece of advice doesn’t necessarily mean that you should.
When looking into your sources you should check their qualifications and legitimacy, review second (and third, and fourth) sources, and take a moment to think critically about the content of the advice. Does it make sense to you, or are you just taking them at their word and their perceived expertise?
Ask Your Financial Advisor
In this world of fake experts and questionable information, the ability to turn to a guaranteed expert who provides trusted, legitimate advice is invaluable.
The truth is, there’s nothing wrong with following financial accounts on social media or ingesting a range of finance-based content. It’s a great way to stay informed on trends, increase your financial knowledge, and every so often, gain a particularly helpful tip.
However, those tips should not be acted upon without first getting a second opinion. A certified financial advisor with a positive track record is the perfect source for that second opinion.
Are you on the lookout for a qualified financial advisor, or seeking input on something you’ve found online? Book a call with us at WealthTrack. We provide researched, accurate financial advice and we’re happy to help our clients make informed decisions that put them one step closer to reaching their financial goals.
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