Social media is having an increasing influence on UK investors according to research by behavioural finance company Oxford Risk, which surveyed 1,008 adults across the UK in mid-December.

The research said 7 per cent of those surveyed use Facebook as a source of information for their investment decisions, while 6 per cent look to Twitter and 5 per cent look to LinkedIn.

A total of 9 per cent of respondents said that over the past year the source of information that has seen the biggest increase in their usage was social media, and 7 per cent of those surveyed now regard social media as their most important source of information.

For younger investors, Oxford Risk said the importance of social media is even greater.
Among investors aged 18 to 34, 20 per cent said social media channels were the most important sources of information for managing their investments, compared to 4 per cent of those aged 35 to 54, and 4 per cent for investors aged 55 and over.

Oxford Risk said they believe many of the decisions made by retail investors are for emotional comfort, and this costs them 3 per cent in returns a year on average.

The company added that with the high level of current market volatility, the level of emotional decisions made by investors has increased, amplifying the scale of these lost returns.

In addition, the research found that many investors have increased their allocation to cash during the pandemic, and the cost of this reluctance to invest is around 4 per cent to 5 per cent a year over the long-term.

Many wealth managers and financial advisers are poorly equipped to help clients deal with the stresses their clients have endured during the pandemic, the company claimed.

Oxford Risk concluded that during a crisis, investors are likely to focus too much on the present and on minor details, and that they feel compelled to do something even when sitting tight is the best solution, which can lead investors to under invest, sell low, or decreased diversification.
 
“The quickfire comments seen on social media are far too often based on amateurs’ knee-jerk responses to market fluctuations, which leads to all kinds of bad decisions and losses,” said Greg B Davies, head of behavioural finance at Oxford Risk. “Investors need to base their decisions on long term views with a realistic view of their goals and attitudes to risk.”

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