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CySEC: Investors take more risk than they can afford

26/01/2023 08:16

Investors are taking more risk than they can afford, a Cyprus Securities and Exchange Commission (CySEC) new survey has revealed.

As a CySEC press release notes, one in four investors admit to investing more than they could afford to lose. Less than one in three investors check the websites of the financial regulator to find out if they’re buying from a legitimate company.

At the same time, most people rely on company-provided or on news reports to determine whether a firm is legitimate and licenced to operate, while more than one in ten investors don’t conduct any research at all.

The study compared the investment habits of investors in four jurisdictions in Europe, namely in the UK, France, Germany, and Cyprus. All respondents in the survey had invested, with the majority (25%) saying they bought and sold financial products on a monthly basis. Another 19% invested every 4-6 months, 17% on a weekly basis, and 4% on a daily basis.

“Social media now has a direct influence on investment decisions, but not all the information can be trusted. Too many investors including young people are taking real risks with their money because they are taking advice and recommendations from unreliable sources, ranging from family members and friends to celebrity endorsements on social media platforms, without properly checking out the entity they’re buying from”, said a spokesperson for CySEC.

According to a CySEC survey, almost a quarter (22%) of investors make investment decisions based on digital promotions or celebrity endorsements on social media. Asked what had primarily prompted investors to make an investment in a particular product, most investors (42%) investigated and conducted research before deciding where to invest. However, a similar number (37%) mostly relied on recommendations from friends and family. Only one in three investors (31%) investors sought advice from an authorised financial advisor, and 6% said they bought a product because they felt pressured by a peer group.

Fin-influencers who reach prospective clients through social media advertising play a major part in persuading investors to buy products. With platforms such as TikTok, YouTube, Instagram and Twitter providing financial content aimed at young people, nearly one in three (31%) of respondents said they had made a financial investment based on the advice of a financial influencer. Investors in France were most likely to be swayed by a fin-influencer (40%) compared to 24% in Germany and 34% in the UK. In Cyprus, 26% of respondents said they made decisions based on recommendations from influencers on social media.

Too few investors spend significant time researching the products they plan to invest in or the firm selling them. While a quarter of all respondents (25%) said they spent 6-7 days researching a particular product, 7% said they did less than 30 minutes research or none at all before committing their money to a product.

When it came to checking out the firm selling the product to see whether it was licenced to operate, 15% of all respondents said they didn’t do any checks at all. Most people (51%) said they looked at company reviews or the firm’s own website (44%), but only one in three investors (30%) looked up the firm on the website of the country regulator to check it was licensed.

Investors in the UK (42%) were the most likely to use the country regulator website to check if the firm selling the product was licenced, compared to 18% of investors in Cyprus, 26% of investors in France and 32% in Germany who checked with the regulator to find out whether a firm was real.

Investors are also taking more risk than they can afford, and many regret their past financial investments. When asked whether they had invested more than they could afford to lose, over a quarter (26%) of all respondents admitted they had. This was particularly true of investors in France, with 32% saying they could not afford to lose their investment. German investors appear to be the most cautious, with 24% saying they had invested more than they could afford to lose. Cypriot investors appear to take less risks, with just 18% agreeing to invest more than they can afford to lose. More than one in three (34%) of all respondents confessed they had regretted a financial investment they had made. This was especially true for UK investors, with 38% regretting a decision.

Responses were based on a survey of 200 investors aged 18-55+ conducted by Censuswide.