Investors take risks they can’t afford

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

One in four investors admits 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.

Most people rely on company-provided or on news reports to determine whether a firm is legitimate and licenced to operate, while 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 monthly.

Another 19% invested every 4-6 months, 17% weekly, and 4% daily.

“Social media now directly influences investment decisions, but not all the information can be trusted.

“As a result, 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 CySEC.

According to the survey, almost a quarter (22%) of investors make decisions based on digital promotions or celebrity endorsements on social media.

Asked what had prompted investors to invest in a product, most (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%) 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.

A quarter of respondents (25%) said they spent 6-7 days researching a product, and 7% said they did less than 30 minutes of research or none at all before committing their money.

When 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.

Most people (51%) said they looked at company reviews or the firm’s website (44%), but only one in three investors (30%) looked up the firm on the website of the country regulator to check if it was licensed.

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

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 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 fewer 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.

It was especially true for UK investors, with 38% regretting a decision.