20 Apr 2021
Younger consumers are getting involved in high-risk investments, such as cryptocurrencies, which can lead to crippling losses.
Research just published by the Financial Conduct Authority found that this trend is potentially prompted in part by the accessibility offered by new investment apps.
Some investors are being tempted through the likes of online adverts into buying products very unlikely to be suitable for them, as nearly two-thirds claim that a significant loss would have a fundamental impact on their lifestyles.
The FCA added:
"For many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest.
"This is particularly true for those investing in high-risk products for whom the challenge, competition and novelty are more important than conventional, more functional reasons for investing like wanting to make their money work harder or save for their retirement.
"Thirty-eight per cent of those surveyed did not list a single functional reason for investing in their top three."
Sheldon Mills, executive director for consumer and competition at the FCA, said much of the consumer investments market meets consumers' needs.
"But we are worried that some investors are being tempted - often through online adverts or high-pressure sales tactics - into buying higher-risk products that are very unlikely to be suitable for them.
"This research has helped us better understand what drives and motivates consumers, so we can tell them about the risks involved in these investments through our investment-harm campaign.
"We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs.
"Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high-risk products."
The research shows that investors often have high confidence and claimed knowledge.
However, they also show a lack of awareness and/or belief in the risks of investing, with over four in 10 not viewing "losing some money" as one of the risks of investing, even though as with most investments their whole capital is at risk.
In some cases, investors can lose more than they initially invested - for example with contract-for-difference investments.
Aberdein Considine is one of Scotland’s largest providers of independent financial advice. If you would like to speak to us about your investments, click here to get in touch.