Young investors driven by competition and hype

FCA survey finds three quarters of younger high-risk investors say they feel competitive when investing in high-risk products. This comes as the FCA launches its new InvestSmart campaign aimed at helping consumers to make better informed investment decisions.

  • The Financial Conduct Authority (FCA) launches £11m campaign targeting new investors 
  • 76% of those aged under 40 who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family and acquaintances and their own past investments 
  • 58% say hype on social media and in the news lies behinds their investment decisions 
  • The FCA partners with Olympic BMX gold champion Charlotte Worthington to highlight the need for preparation when it comes to high-risk investments 

To coincide with the launch of its InvestSmart campaign, to help new investors understand the risks they may be running, new research from the FCA has found that many are driven by competition and influenced by hype.

The FCA surveyed 1,000 people aged 18 to 40 who invest in high-risk investment products. Three quarters (76%) said they felt a sense of competitiveness when placing their money in an investment, with over two thirds (68%) likening it to gambling. Few of those surveyed were investing for the long haul.

Just 1 in 5 respondents (21%) were considering holding their most recent investment for more than a year, and less than 1 in 10 (8%) for more than 5 years. This is despite 60% of those surveyed saying that they prefer more stable returns than investments that rise and fall dramatically, investments that typically come with lower returns requiring longer investment.

Hype on social media and in the news is driving new investors to take up high-risk investments. 58% of respondents agreed that constantly hearing about a certain investment on the news, on social media and from other people encouraged them to purchase specific investments.

This comes as over 1 million UK investors (6%) increased their holdings, or bought a high-risk investment during the pandemic (April to October 2020).

The regulator is concerned that new investors are increasingly accessing higher-risk investments which may not be right for them, or reflect their risk tolerance.

While the FCA’s Financial Lives research shows that while those who have invested believe themselves to be more knowledgeable about financial matters than the general public, the new research found that majority of those who purchased forex or crypto (57% and 69% respectively) incorrectly believed these to be regulated by the FCA. As a result, they were unlikely to understand the lack of investor protection and the risk to their money.

The FCA has joined forces with Olympic BMX gold medallist Charlotte Worthington. Charlotte is highlighting the pitfalls of high-risk activities, and the need for proper preparation before attempting them. Charlotte made history as BMX Freestyle’s first women’s champion at the Tokyo Olympics.

Charlotte Worthington, Olympic BMX gold champion, commented:

'BMX is about big risk, and big reward – but it has taken a lot of preparation to get to this point, with highs and lows and hours of training to get the basics right one trick at a time. Anything high risk might not always go to plan, it’s about being prepared and minimising your risks through research and information.

'For example my first run at the Tokyo Olympic Games didn’t quite go to plan, but because I had prepared properly I was able to get it right in the next run. It’s all about the smaller calculated risks in practice that don’t always go to plan, to gain the right experience to pull off something bigger at the right time.

'When it comes to investments, I would only take on high risks if I felt like I’d done enough research and I was properly prepared.'

To help investors make the right call for them, the FCA is today launching an £11m 5-year campaign, InvestSmart. The campaign targets those who are inexperienced at investing, possibly dipping their toe for the first time. The campaign aims to reach those investors through social media and online, where much of the hype around investment happens. The campaign asks investors to consider their appetite for risk and to ignore the hype, directing them instead to advice available on the FCA’s website

The campaign is part of the FCA’s consumer investments strategy, which was launched in September. This aims to give consumers the confidence to invest, supported by a high-quality, affordable advice market leading to fewer people being scammed or persuaded to invest in products too risky for their needs.

Sarah Pritchard, Executive Director of Markets at the FCA, said:

'We are seeing more people chasing high returns. But high returns can mean higher risks. We want to give consumers greater confidence to invest and help them to do so safely, understanding the level of risk involved. 

'With our InvestSmart campaign we’re taking an innovative approach to reaching those tempted by high-risk products so that they can better understand the risks and where to get advice. We will be targeting people online and through social media, helping ensure inexperienced investors don’t get played. Together with a more assertive approach to finding and taking action against scammers, we hope InvestSmart will help people invest confidently.'

The FCA is encouraging consumers to be InvestSmart when thinking about investing. In particular, it recommends ‘5 important questions to ask yourself before you invest’:

  1. Am I comfortable with the level of risk?
  2. Do I understand the investment being offered to me?
  3. Are my investments regulated?
  4. Am I protected if the investment provider or my adviser goes out of business?
  5. Should I get financial advice?

To find out more, visit the InvestSmart website

Notes to editors

  1. All figures, unless stated otherwise, are from Opinium, commissioned by the FCA to survey 1,000 respondents aged between 18 to 40 who invest in one or more high-risk investment products.
  2. 'Over 1 million UK investors increased their holdings or bought a high-risk investment during the pandemic (April to October 2020)' taken from FCA, Consumer Investments: Strategy and Feedback Statement (Section 7.3).
  3. According to the FCA’s Financial Lives 2020 survey, when asked how knowledgeable they would say they were about financial matters, those with high-risk Investments gave an average (mean) score of 7.5 out of 10 (vs 6.8 of all UK adults). Source: The FCA’s Financial Lives 2020 survey. Question: AT5 How knowledgeable would you say you are about financial matters? Base: All UK adults (16,190); All with high-risk investments (762). Note: All with high-risk investments (HRI) are consumer who have, in their own or in joint names, any of the following: Peer-to-peer lending, Investment-based crowdfunding, an Innovative Finance ISA (IFISA), or Exchange tokens/ cryptocurrency. Fieldwork for the survey ended in February 2020 before the Covid-19 pandemic. Read more about the Financial Lives survey.
  4. See the FCA’s Consumer investments strategy which has been informed by responses to the FCA’s Call for Input on the Consumer Investments Market.
  5. See the FCA's understanding self-directed investors research report.
  6. Protecting vulnerable consumers is a key focus for the FCA. Our Business Plan for 2020/21 states that we will focus on making sure that the most vulnerable are protected.
  7. See the FCA's Consumer investments data reviews for 2020 and 2021.
  8. While product names and descriptions change frequently, examples of high-risk investments might include:
  • high return bonds or mini-bonds, which are often advertised as eligible to be included in Individual Savings Accounts (ISAs)
  • innovative finance ISAs (IFISAs) 
  • unregulated collective investment schemes (UCIS) 
  • some structured products 
  • contracts for difference 
  • land banking 
  • cryptoassets (eg Bitcoin) 
  • foreign exchange products 
  • binary options 
  • investment based crowdfunding