Social media is an information hub that has made the exchange of information faster than ever. Advancements in social media platforms have facilitated quicker communication by allowing anyone to share information from any part of the world. Even though people have benefited from it, information shared on social media has also been the reason for several miscommunications and misleading investors. Trusting the tips given by individuals who provide financial consultation and investment without authorisation is risky. The number of unauthorized advisors suggesting stock tips to invest is increasing every day. Indian stock exchanges have sent warnings about the false information circulated on social media platforms. Investors are advised not to take decisions based on such stock recommendations.
Due to the rise in app-based investment platforms, the number of active users of a Demat account has increased drastically. According to the reports, in the first half of 2022, the number of Demat accounts increased by 7.1 million.
With new participants entering the market for the first time, it becomes easy to get lured by dazzling profit claims made by unauthorized advisors. Constantly getting exposed to such information creates a fear of missing out on new investors. They start to feel that they are not taking full advantage of the share market when they can earn more. Taking multiple trades basis such advisories may lead to the inability to manage trades – causing losses and along with Demat account charges.
Risks In Trusting Social Media tips for investment
Social media has been a gift in several ways. Many people learn about various aspects of the stock market through social media. Though there are benefits, if you do not filter the information on social media, you can lose your money in a blink of an eye.
A few reasons why social media is dangerous to investors are:
- Investment based on inadequate information
As an audience, people prefer to consume small pieces of information. So, the information shared on social media is brief and to the point. Many key details about a topic are left out while sharing on social media. For example, if an individual advises about high-profit-yielding securities, the risk involved in the same can be left out. Here, the information shared is partially true but the lack of details can lead to a loss in investment.
- Losses due to misleading information
People tend to believe the information shared online if they have a good promotional hook. The opportunity to mislead the audience is more when the full information cannot be accessed. The creators of the various online platforms are not obliged to be an expert in the financial market to share information. However, the audience who blindly trusts such sources has faced losses due to wrong information.
- Biased or sponsored reports
Unauthorized advisors on social media advertise and promote various businesses. Even though some of their information hits the bull’s eye, it is tricky to filter out the misleading bites. The investment information is loaded with advantages, leaving out many disadvantages.
Following such advertisements and investing in their tips is not an ideal option.
Tips to avoid investment misinformation on social media
There are a lot of rumours about investment opportunities on social media platforms. Out of the many, there are a few authorized professionals giving investment advice. Finding out a credible source requires some due diligence. Below are a few tips to follow while taking investment decisions.
- Seek professional advice
Rather than trusting random sources of information on social media, take advice from a registered and authorized professional. It will protect your investment portfolio from risk and help maintain good financial health.
- Cross-check the data before investing
The credibility of a source plays a pivotal role while taking a decision. Especially when a large sum of capital is involved, double-check the data basis on which you are making an investment and take the decision carefully.
- Don’t take investment decisions impulsively
Emotions should not influence investments. Managing behavioural impulses is crucial for an investor to avoid unwanted risks.
- Follow tried and tested methods
Make an investment plan and take decisions keeping in mind those goals. Learn chart analysis and company analysis through financial ratios. Read about investment mindset from established investors like Warren Buffet, Benjamin Graham, Robert T. Kiyosaki, etc. Proper planning and laying out investment goals will help avoid impulsive decisions.
Conclusion
Investment plans must be personalized, based on an investor’s need. The investment strategies shared by unauthorized sources do not analyze the investment portfolio or your goal. Investors should do their research and avoid making decisions hastily. Despite the warnings given by SEBI, many individuals have lost money due to online misinformation. If you are an investor, make sure not to take emotional decisions or fall for misleading advertisements. Take advice from a registered advisor when any information is required.
Investments in the securities market are subject to market risk, read all the related documents carefully before investing.
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