The rise of ‘finfluencers’ and huge surge in financial content on platforms like TikTok, Instagram and Twitter over the past 18 months has hooked a new generation on finance and investing.
Young investors are spending their spare cash on cryptocurrencies and stocks – with a large number of them following the advice they got from scrolling through social media, lured in by promises to get rich quick and beat the system.
Videos tagged #finance, #investing or #stocktok on TikTok have billions of views – a total of 7.5 billion at time of writing. Clips hyping stocks that are “going to the moon”, promising consumers they can easily turn $10 into $10,000 or kickstart a “doge revolution” dominate the financial social media scene and drown out educational content.
“The FOMO culture that dominates social platforms like TikTok, Reddit and Instagram has become a breeding ground for the marketing of high-risk investments shunned by the mainstream investment industry – often for good reason.” Myron Jobson, personal finance campaigner at Interactive Investor, told Insider.
Not all financial social media content can however be labeled the same. With the same hashtags that promote questionable investment and financial advice, there are videos with sound advice explaining Roth IRAs, how to increase your credit score or the benefits of long-term investing.
Tori Dunlap, a money expert who started her first business at age nine and accumulated $100,000 worth of savings by age 25, is one of the ‘finfluencers’ who shares such content as part of her brand Her First $100K on TikTok.
She said even before TikTok, bad financial advice was everywhere – it was just delivered through a different medium. Her main issue with the app is the 60-second time limit on videos. This feature was recently removed, but longer videos are still rare.
“I have a lot of parameters because I only have a minute and so I am using TikTok hopefully for folks as a jumping off point of like ‘I’m giving you this bit of education, now go read about it,'” she said in a recent interview with Insider.
Dunlap believes problems arise when consumers stop questioning the content they are taking in – after receiving good advice once, it’s easy to keep trusting what you see online, she said.
“You have to go ‘does this seem too good to be true?’ and if it seems too good to be true, it probably is. Or, just google the person.” she said.
Jobson agrees – he recognizes some content is helpful, but warns consumers to approach online investment advice with caution and to check the credibility of those who are giving it.
“There are some good materials out there to help people on their investment journey, but, more generally, we have seen concerning social media posts.” he said. “The advent of broader online ‘influencers’ has seen rise of so-called ‘financial influencers’ – many of whom haven’t got a clue on what they are talking about to put it bluntly.”
Young investors, and Gen-Zers in particular, are pouring their spare cash into things like cryptocurrencies and meme stocks, drawn in by the social media communities that have banded together to take on Wall Street giants, and popularized by retail trading apps like Robinhood.
As positive as it is to see young people get involved with their own finances, these apps might be doing more harm than good, seeing as they don’t educate their users enough and aren’t particularly inclusive places, according to ‘finfluencer’ and personal finance expert Tori Dunlap.
Dunlap, who has millions of followers on Instagram, TikTok and Twitter and runs personal finance education and advice brand ‘Her First $100K’, says the problem with these apps is they are appeal to new, young investors that are often unaware of risks, or what a good investing strategy is due to a lack of education on the subject.
“They’re focusing on young people, which is great, but young people who don’t really know what they’re doing. They don’t really know how to invest, don’t really know how to grow their wealth and so I think that that’s a huge risk.” she told Insider in an interview. “Going after this certain population is great, but what are you doing to educate them? What are you doing to make they understand a risk before, you know, the risks involved before they start investing?” she said.
Dunlap knows a thing or two about looking after her finances. She started her first business age 9 and by the time she was 25, she’d built up savings worth $100,000.
Retail trading has soared in popularity over the past 18 months throughout the COVID-19 pandemic, with apps like Robinhood or platforms like eToro seeing booming business. But they’re not without pitfalls.
Just last month Robinhood agreed to pay nearly $70 million to US regulators to settle claims it had misled millions of customers, approved ineligible traders for risky strategies, and didn’t supervise technology that locked millions out of trading. This was the largest fine on record to the Financial Industry Regulatory Authority.
Alongside this, retail trading apps and social media influencers who talk about finance have pushed the idea of democratizing trading, meaning that anyone can do it and they don’t necessarily need financial professionals to help them make money from investing.
Robinhood was not available for comment when contacted by Insider.
Dunlap said apps like Robinhood have done well at making investing more interesting and appealing to young people , which she thinks is key in terms of them starting in growing their wealth early in life, but she also believes they still have a long way to go.
Trading apps often “gamify” activity, rewarding users with little bursts of digital confetti on their screens when they make a trade, or playing little jingles to notify them of updates. There have been well-documented cases of users that have suffered the equivalent of gambling additions as a result, for example.
Another one of her qualms is that the community the trading apps create aren’t especially inclusive. The lack of educational tools is one issue, but Dunlap said she thinks it reaches all the way to these apps are designed, which she describes as ‘bro-y’.
“It’s not really a democratization if it doesn’t involve minority groups, if it doesn’t also involve women, and people of color and other members of other minority groups,” Dunlap said. “Yes, it’s, like, appealing to younger people, but it’s not straight white male hedge fund managers, it’s just straight white male ‘finance bros.'”
The horde of retail traders who have flooded the stock market in the past year are here to stay – even when the market turns sour, experts told Insider.
Since January 2020, retail investors bought $400 billion in stocks, doubling their total equity purchases from years prior, according to Vanda Research. Stock buying had been on the upswing for years before that though as more everyday investors had better access to market data and fee-free trading, thanks to brokerage apps like Robinhood, among others.
Dave Lauer, a stock market structure expert who has been interacting with retail investors, said the COVID-19 pandemic simply accelerated the number of day traders joining the market. But now that they’re here, “they’re here to stay,” he said.
For the first time, he’s seeing hundreds of thousands of people wanting to learn about how markets work and improve them.
“They see it as more than just a trade or an investment,” he said. “They see it as a movement.”
Matt Kohrs, a 26-year-old day trader with more than 300,000 followers on his YouTube trading channel, said the community of retail investors came together because they’re “tired of the tilted game” of Wall Street.
“The driving factor is a huge social-cultural movement,” he said. “It just happens to be playing out on a stock chart.”
Retail traders have joined the stock market in droves before.
Kristina Hooper, chief global market strategist at Invesco, said the dot-com bubble in the 90s had an “extraordinary level” of retail participation.
During that time, “it was not Reddit and Wall Street Bets and forums; it was taxi drivers in New York City talking about their favorite dot-com picks,” said Darren Schuringa, the founder of ASYMmetric ETFs, a firm designed to empower retail investors.
The difference now, according to Tuttle Capital Management Chief Executive Officer Matt Tuttle, “is the access now to all sorts of information, it’s the ability to trade for free and to trade quickly, and it’s the fact that they’re connected.”
That connection, Tuttle said, has given them the buying power of institutional investors.
For example, in January, hordes of day traders mobilizing on Reddit drove shares of GameStop to sky-high prices and caused short-sellers to lose billions. The event started the trend of “meme stocks,” and since then, the traders have driven share prices of multiple other companies, like AMC Entertainment and BlackBerry, up as well.
“They’ve got some power,” Tuttle said. “What history tells you is people who have power don’t give it up, at least not willingly.”
Even a market correction isn’t likely to faze retail traders, though they’ll likely face losses and some will exit, the experts said.
Hooper said a market correction could be on the horizon, though it will be short lived and won’t dent retail appetite.
“If you only have a downturn that lasts a few days and then stocks start going back up, will it shake out a lot of retail investors? Probably not,” she said.
However, a correction could hit meme stocks “quite hard,” she said, “because if there is one area where the fundamentals aren’t backing it, it’s meme stocks.”
Lauer, on the other hand, said meme stocks might avoid a correction because they appear to trade “relatively independent of what the market is doing.”
Kohrs said because retail traders make money off volatility, they could have even “bigger gains” in a bear market if executed properly.
“If you have proper risk management,” Schuringa said, “you can make money on both sides of the trade.”
The investing side of TikTok, better known as “StockTok”, is ballooning, with the TikTok hashtag “#investing” garnering over 2.8 billion views. Many videos with tagged with #investing are centered around investing tips, and novice traders on the app have said they often heed the advice.
Thirty-six-year-old Douglas Boneparth, who provides investing advice to Millennials through his firm Bone Fide Wealth, said he loves the greater attention given to the world of investing through social media. But with the democratization of the stock market comes a lot of misinformation and “cringe.”
“It can get loud and noisy, and if you follow the wrong thing you can make some mistakes you really regret,” he said.
Insider asked three market experts for their take on nine popular TikTok investing videos with questionable advice.
Boneparth, along with Sam Stovall, chief investment strategist at CFRA, spoke with Insider for the story. Five of the TikTokers did not respond to Insider’s request for comment, and two couldn’t be reached through social media.
Kris Krohn, @kriskrohn, advised his 832,000 followers to avoid the “401K scam” in an August 2020 video. Krohn, known for his real estate-investing advice, said “max out your 401K could be the dumbest advice that I’ve ever heard for anyone that wants to take control of their financial future.”
“I admire his passion and love for real estate, but this is just factually incorrect,” Boneparth said. “A 401k is not a scam, it offers tax advantages.”
Sam Stoval said the advice is good “only if you like to throw away money, and if you are a believer in illogical conclusions.”
“Maxing your company’s 401K match will get you free money, since the company will give you – free of charge – all or some of your contributions,” Stovall said.
Plus he said stocks, which 401Ks can invest in, have delivered an 11% compound annual total return since 1946, not the 1% Krohn claimed in the video. The retirement accounts can ensure “the building of a substantial retirement nest egg,” he said.
The @teen.executive account, which has 187,500 followers, said people can make a million dollars or more if they use soap and shampoo samples from hotels, saving about $45 per month, and investing those savings into the S&P 500.
Stovall said that practically saving money whenever possible and investing those savings “is indeed useful advice toward becoming a millionaire by the time you retire.”
But, “who’s spending $45 a month on soap?” Boneparth said, “and you still have to pay for the hotel room.”
Boneparth, who wondered if the video was made as a joke, said penny pinching on the small things isn’t the path to financial independence.
“Soap alone isn’t going to get you a million dollars here.”
Amid the resurgence in meme-stock mania around AMC Entertainment, the @atomcash account, which has 1,400 followers, said, “Mathematically speaking, it is statistically possible that AMC can reach anywhere from 100k a share to 500 or even a million dollars a share.”
“There is a huge difference between being ‘statistically possible’ and ‘realistic,'” Stovall said.
At even just $1,000 per share, the company, which is currently trading at all-time highs around $45, would be a $500 billion business.
“It’s just absolutely ludicrous to think that AMC, a company that’s bleeding cash and trying to shore up its balance sheet and survive would be worth something slightly less than Tesla,” Boneparth said.
The creator behind @ceowatchlist publishes regular TikToks encouraging his 822,000 followers to track public investing records of CEO’s, senators, and other rich people and buy what they buy.
It’s a piece of advice that a lot of investors follow, seeing how many attend the Berkshire Hathaway annual meeting and read Warren Buffett’s letter to investors, Stovall said.
“A problem with buying what rich people own, however, is that these rich people probably don’t publish a newsletter telling when to buy and sell, along with publishing a track record,” Stovall added. “Therefore, blindly buying what rich people own means you may get in late and never know when to get out.”
Tik Tok Creator @Chris.stocks detailed to his followers what a support and resistance level is, and said when you see a stock nearing it’s support or resistance level, you can predict what’s going to happen, and make money.
“That is much of the basis behind technical analysts. ‘The trend is your friend until it ends,'” said Stovall.
Boneparth said the video is a foray into how to use technical analysis for trading, but warned that the skill takes time to practice.
“There’s no secret formula to getting rich,” said Boneparth. “I’m glad people are getting interested but that’s not long-term investing. You just can’t watch this video and go buying and selling.
In another TikTok video slamming retirement accounts, @realitycheck2020 says that investors shouldn’t use retirement funds, as those charge fees while your money loses value. His solution is for investors to put money in an S&P 500 index fund, and then look for opportunities in new IPOs, cryptocurrencies, and real estate.
Stovall clarified that most retirement accounts allow you to invest in the S&P 500 at a low cost.
Boneparth summed up this video has “really broad financial advice from someone spouting their opinions about asset classes.”
“It’s not backed with any information that would help someone. It’s all predicated on FOMO, of a market that’s been treating investors well for taking risk,” he said.
@tdorriz tells Tik Tok that investors can turn their $1,400 “stimmy” (stimulus) into $10,000 by buying SPACs that are about to acquire a target company.
“If these target companies are any good, these stocks will easily double or triple overnight,” @tdorriz said in a TikTok Boneparth said this investor is incorrectly linking correlation and causation, and urged investors to do their own due diligence.
“To just go buy any SPAC and not understand is a disservice,” said Boneparth. “This advice assumes that all SPACs make money. There are no investment guarantees!” Stovall added.
In a response to Insider on Twitter, the TikToker said the idea “flopped,” but noted his video was just his opinion not advice. “80% of the stocks I buy go up in my opinion,” he said in a message.
A TikTok from @rickrahim tells investors to take out a low interest loan, “plow it all into crypto,” and take out a tiny bit of profits each month to make monthly interest payments. Boneparth and Stovall both had strong reactions to this one.
“If he’s trolling, very funny. If he’s not, that’s an extremely dangerous, borderline stupid idea,” Boneparth said. ” Do not lever yourself to invest in any speculative assets. The risk is not worth the reward. Very dangerous, terrible, terrible financial advice.”
“Anyone who believes that a particular asset class ‘always goes up’ deserves to lose money,” Stovall said. “Also, why compound a possible mistake by taking out a loan (which carries its own cost) to purchase the investment you didn’t bother to research, or, worse yet, buying on margin? You’ll only end up losing more than you initially invested.”
The tally of stocks with high short interest – a measure of wagers to the downside – has “come down dramatically” from mid-January when the GameStop craze began, a report from Barclays shows.
The number of companies for which short interest makes up 30% or more of shares outstanding has plummeted from 43 to just 18. In dollar terms, that means short sellers have shrunk their positions by 80%, from about $25 billion to just $5 billion, the data show.
The meme-stock craze has “definitely had an impact,” Matt Maley, chief market strategist for Miller Tabak, told Markets Insider, as short sellers have been “burned very badly.”
“It really disrupts a lot of strategies,” he said. “Some of these long-short strategies that have worked very well for a long time are getting thrown through a major loop because there’s no way any model says GameStop should trade at $300 something or AMC should trade at $70.
He added: “It ruins their hedges, and they’ve got to rethink some things.”
Amid the GameStop craze alone, analysts estimated short-seller losses totaled $19 billion. Melvin Capital, which took a 53% loss because of the craze, later exited all of its public short positions, though it may still hold some privately.
Renewed interest in meme stocks in recent weeks has driven more short sellers losses. On June 2 alone, a meme stock rally led by AMC caused nearly $5 billion in losses for short sellers in the top 10 shorted stocks, ORTEX data showed.
Even so, “the recent short squeeze in meme stocks over the last two weeks has also not led to material underperformance of the short interest factor baskets during this period,” Barclays said.
Short-seller losses have been largely localized to meme stocks that have generally had high short-interest rates. The data shows total short bets has remained steady since January, but the number of heavily shorted stocks has declined to less than 1% from 2.8% of the total.
“Given the low risk of a broad contagion, we view the fallout of the recent short squeeze to be limited,” Barclays said.
Bearish bets on companies with high short interest rates have been underperforming since March 2020, and the GameStop episode accelerated that, said Barclays analysts led by Maneesh Deshpande.
“The underperformance in the January 2021 episode was more acute in smaller cap names, which is where most of the high short interest was concentrated,” they said.
Small to midsize companies are the easiest targets for retailers to drive a short squeeze, as it doesn’t take as much money to move the stock, according to Maley.
“Those are the ones you can really squeeze because they’re just less liquid,” he said. But a company like General electric with a big share float, “you can’t squeeze; there’s just too much money in the stock.”
A handful meme stocks held onto strong Thursday while others, including AMC Entertainment, GameStop, and Bed Bath & Beyond retreated.
BlackBerry led gains among meme stock Thursday before turning downward along with other well-known names. The stock, which fell as much as 8%, was the top conversation piece among retail-trader favorites on Wall Street Bets with AMC and GameStop behind it, according to data from Quiver Quantitative.
AMC, which nearly doubled in price yesterday, fell as much as 40% after the company announced a 12-million share sale. Trading halted three times for the stock amid the sharp decline.
Other meme stocks that have rallied this week fell with it. Bed Bath & Beyond dropped as much as 27% after its 63% one-day rally Wednesday. And the original meme stock, GameStop, retreated as much as 13%.
But not all of the retail-trader favorites declined.
Canadian cannabis companies Tilray and Sundial both rallied despite the meme-stock losses. Tilray, which recently completed its acquisition of Aphria, jumped as high as 16% Thursday, as Sundial rose 33%, putting both stocks on a two-day rally.
The two companies have benefited from positive sentiment from retail traders after Amazon announced it would back a federal bill to legalize marijuana. They were among the “most discussed” stocks on Wall Street Bets, Quiver Quantitative said.
Cryptocurrencies are all the rage right now, thanks to the likes of Tesla boss Elon Musk hyping up dogecoin, or some of the world’s most respected financial institutions making bitcoin available to their clients, right down to youngsters on social media snapping up digital coins for pennies and then paying for college.
The value of most digital tokens has gone through the roof. Search volumes for “crypto” on Google outpace those for “stocks” by a ratio of 5 to 1 right now. Everyone wants in and to “HODL” – slang in the crypto community for “hold on for dear life”, or hang on to your bitcoin, no matter how crazy the price goes.
And at the very forefront of the charge into crypto are millennial investors. In the US alone, two out of three millennials say they believe it’s becoming a more attractive asset class. And why not? To many, it looks like quick, easy money and it’s the polar opposite of their parents’ definition of “finance.”
More time to secure returns, low-effort investing, the novelty value, detaching from traditional financial systems and the temptation of high rewards are some of the reasons some of the young investors we spoke to gave as to why they love cryptocurrencies.
Mastercard’s New Payment Index showed earlier this month 40% of those surveyed said they would use crypto in the next 12 months. Specifically though, 67% of millennials said crypto had become a more attractive investment option since its boom began, and 75% of this age group said they wanted to learn more about the asset class.
Millennials are largely understood to be people born between 1980 and 1994, many of whom are gradually inheriting their baby-boomer parents’ wealth and pretty much all of whom have grown up in the digital age.
“After many half-drunk conversations with [a friend], we finally saw “the light” that was DeFi… The idea of being an early adopter, even with all the hype, was a little scary but also very exciting.” Jon Amar, CEO of public relations technology startup Vetted, told Insider in an interview.
But it was not just the novelty that attracted Amar into the crypto-sphere. “I can’t go to a store and buy a good or service with gold. I can, however, do that in certain places with crypto. This was a big determining factor for me, as it legitimized crypto as a viable alternative asset.” he said.
Melissa Lewis, a young investor who uses Binance to trade cryptocurrencies told Insider one of the reasons she likes crypto investing is its ease. “With crypto, you can buy it and forget about it for a couple days and then when I check it, it’s increased,” Lewis told Insider.
“Crypto has had a steady and stable increase, whereas my stocks are constantly going up and down,” she continued.
Others echoed this sentiment: “I also see a more visible path to making profits in this market versus the equity and bond market,” investor Mitchell Yousem said.
This long-term nature of crypto investments is one of the main reasons why millennials are the driving force behind the boom, rather than older investors, eToro crypto market analyst Simon Peters told Insider.
“With millennial investors compared to the older generation, time is on our side and we can afford to hold these investments for 20, 30, 40 years in certain cases and see what happens, where older generations don’t have the luxury of time,” he said.
But Peters also believes many are first tempted by the thrill that crypto’s volatility brings.
And these tokens are certainly volatile. The most widely traded, bitcoin, has risen by 78% so far this year alone, having hit record highs around $64,000 just one month ago. But this pales in comparison with the price action in some of the alternative tokens. Meme crypto dogecoin has gained 12,000% this year, while Cardano’s ADA token has risen almost 1,000%. But even that seems small fry compared with tiny, hyper-volatile tokens that can gain 1,000% in 24 hours.
“Whilst people may have gotten in initially purely because of the volatility and the price action, once they’ve actually gone and actually understood the technology, what it’s about, what crypto’s trying to do essentially that’s when more of an interest may develop as well, eToro’s Peters said.
It’s not just about convenience and money. Crypto, unlike traditional investment approaches, offers transparency Yousem said.
“I think many of the younger generation have a great deal of skepticism towards banking institutions, and investing in and choosing to use alternative forms of currency is one way to vocalize this view,” he said.
Based on Peter’s experiences at online broker eToro, he believes this plays a role on top of the money-making potential. “I think with the younger generation as well there’s perhaps over time been a bit of a disengagement with governments and central authorities and the whole, I suppose, ethos of crypto is to be decentralized.”