new generation of app investors are blind to risks

Popular investment trends such as cryptocurrencies and ‘meme stocks’ such a () have attracted thousands of younger investors into using new investment apps without a good idea of the financial risks involved, according to research by the UK financial watchdog.

The Financial Conduct Authority is warning that higher-risk products, also including foreign exchange trading, CFDs, options, investment-based crowdfunding and peer-to-peer lending, “may not always be suitable for these consumers’ needs”.

This is because the research carried out by the FCA with more than 500 people currently engaged or considering self-directed investing indicated that nearly 59% of young investors surveyed claimed that a significant investment loss would have a fundamental impact on their current or future lifestyle.

READ: GameStop, AMC Entertainment and the democratisation of investing – meet the Reddit users turned traders

Over four in 10 new investors don’t view “losing some money” as one of the risks of investing, even though their whole capital is likely to be at risk, the research also found.

For many newer or less experienced self-directed 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, with more than a third of those surveyed not listing a single functional reason in their top three motivations for investing.

Gut instinct, shortcuts and risky bets 

Despite a lack of experience, most new investors have a strong reliance on gut instinct and rules of thumb, with almost four in five (78%) trusting their instincts on when it’s time to buy and to sell, and the same proportion agreeing with the statement that “there are certain investment types, sectors or companies I consider a ‘safe bet’”.

The research found new investors tended to skew younger and be more gender-balanced, more BAME and more C1C2DE11 than the ‘traditional’ audience who have been investing for longer.

New investors are roughly divided into three types, the report suggested: those looking to ‘have a go’, who tend to be motivated by a combination of factors such as making money and emotional factors like the challenge and novelty investing, those who have some professional or academic background in maths, finance, economics or business and who believe this gives them an edge to see patterns and ‘think it through’, plus a group who see betting as being similar to gambling.

Those having a go, often look to “learn through doing and adopt shortcuts to decision making which can include going with ‘hyped’ options they have heard a lot about, or viewing…