Nearly two thirds of younger investors are taking big risks on their investments, which could significantly impact their lifestyle, according to a report from the FCA.
The UK’s regulator has published findings of its new report, which is aimed at better understanding investors engaged with high-risk investments like cryptocurrencies and foreign exchange.
One of the key findings is that there is a new, younger and diverse group of consumers involved with high-risk investments, which is likely down to FinTech apps making it more accessible. However, of those questioned for the report, 59% of these young investors claim that a significant investment loss would have a fundamental impact on their current or future lifestyle.
The main reasons people are making investments was down to emotions and feelings such as enjoying the thrill of it. Social factors, like the status that comes from ownership in the companies they invest into, also played a big part.
This was particularly the case for those involved with high-risk products, where the challenge, competition and novelty were more important that wanting to make money or save for retirement. Of those surveyed, 38% did not list a single functional reason for investing in their top three.
FCA executive director, consumer and competition Sheldon Mills 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.
“This research has helped us better understand what drives and motivates consumers so we can tell them about the risks involved in these investments through our investment harm campaign.
“We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs. Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high risk products.”
The report also claims that there is a lack of awareness of the risks of investing. More than four in ten respondents did not view losing some money as one of the risks of investing, despite most of their capital is at risk. In some cases, investors can lose more than they initially invested in.
When making investments, most people also follow their gut rather than analysis. It claims that 78% of people trust their instincts on when to buy and sell.
The report indicates that the newer audience is more diverse than traditional investors, with it tending to skew more towards being female, under 40 and from a BAME background.
Copyright © 2018 RegTech Analyst