A financial regulator is warning that cryptocurrencies and FX may not be the best choices but are easy to jump into
Risky assets can have a place in an investor’s portfolio when based on a balanced assessment of risk versus return.
But for many investors under 40, taking financial risks is not the result of due diligence, it’s about the thrill of the gamble and ease of market entry.
This has been highlighted by new research conducted on behalf of the financial regulator in the UK which says it is concerned about some younger investors’ behaviour.
The Financial Conduct Authority (FCA) found that younger investors are potentially being prompted to make higher risk investments due to the availability of new investment apps.
The at-risk group skews towards female, under 40, and from a BAME background. They are more likely than other investors to get tips from contemporary media such as YouTube or social media.
The regulator is worried about investments in cryptocurrencies, foreign exchange, and other risk assets, despite 59% of these investors saying that losing a significant amount would have a fundamental impact on their current or future lifestyle.
The research discovered that just 4 in 10 younger investors did not consider losing money as a risk of investing. Almost 8 in 10 respondents said they trust their gut instincts on investment choices and a similar share consider certain companies, sectors, or investment types as ‘safe bets’.
Thrill beats function
While the thrill of investing and a sense of ownership of companies they invest in are key factors for investment choices, the research found that the challenge, competition and novelty of the investment choices are considered more important than conventional reasons for investing like wanting to make their money work harder or save for their retirement.
In fact, almost four in 10 of those surveyed did not list a single functional reason for investing in their top 3.
“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,” said Sheldon Mills, Executive Director, Consumer and Competition at the FCA. “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.”
