There are lots of reasons why someone decides to invest their hard-earned money and with the ease of access to the markets via online sites and mobile apps, higher risk investments and schemes are becoming more available, often to inexperienced and ill prepared ‘investors’.

The Financial Conduct Authority (FCA) has recently published research findings into better understanding investors who engage in high-risk investments like cryptocurrencies and foreign exchange.

They said “Some of the most serious harms we see relate to investments outside our regulatory perimeter and online scams, many based overseas. We are also seeing a concerted and conscious effort to promote higher risk investments that are not appropriate for the people being targeted. Most retail investors’ needs can and should be met by more straightforward, mass-market investments.”

It is of course encouraging that younger people are getting interested in investing, partly being attracted by the access offered by new investment apps and it is not surprising, when you look at the age of the majority of Instagram users is age 13-34 and that if you do a search for #investing on Instagram there are 9.6 million posts and on TikTok a staggering 2.1 billion.

The justified concern from the FCA is that research shows that consumers, particularly the more vulnerable, are less likely to understand the risks, read the small print and do not know what to do when things go wrong. These consumers can also often neither afford the loss nor recover from it.

Of course, sensible people would know not to take specific investment advice off someone posting on TikTok or a similar platform and for investing they should only be used as a gateway to education and of course for a bit of fun as a regulated and authorised firm must adhere to tight regulations before supplying any advice or promotion.

The research found that 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. 38% of those surveyed did not list a single functional reason for investing in their top 3.

Sheldon Mills, Executive Director, 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.

The FCA recommends that consumers consider five important questions before they invest:

  1. Am I comfortable with the level of risk?
  2. Do I fully understand the investment being offered to me?
  3. Am I protected if things go wrong?
  4. Are my investments regulated?
  5. Should I get financial advice?