Personal Finances News – Are Reddit share buyers Mrs Thatcher’s dream come true?
It is 35 years since Margaret Thatcher revealed her dream of a society ‘where owning shares is as common as having a car’.
Yet despite dogged attempts by the finance industry to get people investing, little changed for decades. For years, car owners outnumbered those with an investment account by almost four to one.
But that was until 2020. In the past year, hundreds of thousands of savers have tried their hand at investing for the first time. As many as 400,000 new accounts were opened on the main trading platforms last year alone, according to a report by Find Out Now and Boscobel & Partners.
Thatcher’s dream was that of a society ‘where owning shares is as common as having a car’
The investing frenzy reached fever pitch last month when thousands of novice investors piled on to share trading and investment platforms to get in on the action. It shows no signs of slowing down.
Thatcher’s dream is quickly becoming closer to a reality – but it looks nothing like she could ever have imagined. Of course, some new investors are turning to the traditional investment platforms such as Hargreaves Lansdown – and seeking out information from established financial services companies.
But rising numbers are bypassing them altogether. Instead, they are getting their investment tips and ideas on social media websites and apps such as Twitter, YouTube and TikTok.
They create online investing communities on forums such as Reddit and even Mumsnet. They learn about investing from anonymous online traders and ‘finfluencers’ – social media financial influencers. They’ve even invented a new investing language such as ‘tendies’ – short for ‘chicken tenders’, slang for trading profits.
Their tools of choice are not limited to the funds and investment trusts of the old guard. Instead, new investors buy and sell shares at speed and invest in cryptocurrencies and risky CFDs (contracts for difference) that allow you to use debt to bet on share price movements.
CFD platform IG Group saw a 55 per cent rise in new customers in the six months to December alone and even had to suspend new account openings for a period last month because demand was so high.
Traditional investment vehicles such as Individual Savings Accounts (Isas) and Self-invested personal pensions (Sipps) remain popular. But thousands of new investors are rejecting them in favour of new investing apps on their smartphones – and platforms such as Trading 212 and eToro that offer free share trading. Trading 212 became the most downloaded app in the UK last week.
So this is all good news for investors, right?
One upside of this new share movement is that ordinary investors have started to see how much power they have.
Last month, an army of retail investors – based here and in the US – managed to move financial markets by buying shares in a few companies en masse to push up their share prices. First they bought shares in GameStop, followed by others such as Nokia and then silver funds.
Their aim was to bring down a few large hedge funds which they accused of making obscene amounts of money from others’ misfortunes. The hedge funds had made bets that the share price of these companies would fall. The retail investor army worked together to push up the share prices so the hedge funds would lose their bets – and billions of pounds in the process.
It’s up for debate whether the retail investors ‘won’. They hurt the hedge funds, so if that was their true aim they succeeded. However, at what cost?
Reddit investors bought shares in GameStop, which fell by as much as 65% on Tuesday
The share prices of these companies have inevitably plummeted again, leaving ordinary investors who bought at inflated prices nursing huge losses. A few who sold out early will have made a fortune.
GameStop shares fell by as much as 65 per cent on Tuesday morning. A hedge fund can bounce back more easily than a new investor who has gambled with and lost their hard-earned savings.
One indisputable win for ordinary investors is that perhaps for the first time they have witnessed the enormous power they wield. Should they choose to use it, there is almost no limit to the good they can do.
They could use their power to demand firms improve their environmental credentials, rein in excessive boardroom pay and treat their staff better.
Until now private investors have been failed in this area by many wealth platforms. They are still treated as second-class investment citizens, often not allowed to vote at AGMs even though they are shareholders.
What’s the downside to this new craze?
New investing behaviours may be more thrilling than traditional models, but they are far more likely to end in disaster. Many investors in GameStop have learned this the hard way.
Damien Fahy, founder of personal finance website MoneytotheMasses, believes new investors are set up for a fall when they learn to invest from new, popular sources as they are more likely to tout risky strategies.
New investing behaviours may be more thrilling than traditional models, but they are far more likely to end in disaster, says Rachel Rickard Straus
‘Investing should be boring,’ he says. ‘The key is to invest as much as you can afford in a low-cost diversified portfolio over the long term at an acceptable level of risk to you.’
He adds: ‘That message is out there on social platforms, but it isn’t sexy and so is drowned out by influencers who are making money by promoting high-risk investments and get-rich-quick schemes.’
Fahy says that since the finance industry refuses to move with the times and engage with new investors on the platforms they like, ‘the likes of TikTok end up providing a wild west of disinformation’.
The new sources of investment information are also far less likely to be regulated than the old. When you receive a glossy marketing leaflet from your Isa provider, it may not make for a riveting read, but you know it’s been through compliance checks and would get the all clear from the regulator. But when reading financial information, tips and advice from social media platforms and forums, there are no such guarantees.
Holly Mackay, of investment website BoringMoney, says: ‘Following an influencer is one thing if you’re looking for a new pair of jeans. If they fall apart on the first wash it’s not the end of the world. But I do feel nervous about unqualified financial experts popping up all over the social shop.’
She adds: ‘To be honest my dog could go on TikTok at the moment and tell people to buy tech stocks and be hailed as a genius for a while. But he can’t tell you the boring basics and show you how to make your money grow as much as possible while minimising risks.’
Why the sudden interest in investing?
Social restrictions due to Covid mean that millions of us have more time on our hands and cash to spend – ideal for starting to invest.
Of course, many will not be in this lucky position, but as Fahy explains: ‘Those who have been fortunate enough to stay in employment and have managed to slash their outgoings – for example, by reducing commuting costs – have found themselves hundreds of pounds better off a month.’
Meanwhile, interest rates are so low that putting cash into a savings account is unrewarding. Savers are having to seek out alternatives to generate a return. At the same time, online investment platforms are opening up investing to a new generation.
BoringMoney’s Mackay explains: ‘Online investing has got better and new robo-advisers are opening up investing to a digital generation who don’t feel confident, but know there is a better long-term option than a cash Isa.’
Social restrictions due to Covid mean that millions of us have more time on our hands and cash to spend – ideal for starting to invest
Should investors add anarchy to portfolios?
New technology and free share trading platforms mean that ordinary investors finally have the same access to financial markets as professionals. However, they are still not on a level playing field, cautions Galina Stavskaya, investments manager at digital financial coaching app Claro.
She says: ‘Retail investors can now do what professionals do. But they do not have access to the tools for analysis that professionals use to make sure they are taking an appropriate level of risk and to build a portfolio that is right for them.’
Stavskaya warns that many new investors are jumping in without working out what the right level of risk is for them.
Mackay adds: ‘If you fancy a punt, treat it as a punt and be prepared to lose it all. But do not call it investing – it’s gambling. If you have £1,000 and are itching to have a play, maybe put £100 on the “exciting” investment and the rest in a more boring one. The act of investing should be boring. But the things it can help you afford in say five or ten years’ time are not boring.
Will this herald a new era in long-term investing?
It remains to be seen whether the share buying frenzy fizzles out or is here for good. But there’s an interesting twist. A movement that began with investors looking to make a quick buck may have triggered a new interest in long-term investing.
Volatile assets such as US tech stocks, cryptocurrencies and GameStop are what brought investing into the mainstream in recent weeks. But many first-time investors are still going for conservative options.
For example, investment firm Vanguard does not offer individual share trading or niche assets such as cryptocurrencies or commodities – it offers products designed for long-term investing. But in the last week of January, when people were piling into GameStop, it saw a three-fold jump in new customers compared to the same week last year.
And what about Thatcher’s dream?
When Margaret Thatcher spoke of share ownership for all, her vision was of families having a long-term stake in the country’s flagship companies. It’s a far cry from what has happened in recent months as investors have piled into cryptocurrencies and tech stocks.
However, there is an element to this very modern story that may not have surprised her. Competition and the free market will ensure that the surge in new investors and platforms improve the investment industry for everyone. Stavskaya believes the industry has finally got the wake-up call it needs.
She says: ‘For years retail investors faced huge barriers to entry as a result of high fees, a lack of transparency and poor guidance. Everyone inside the financial system made investing look more complicated than it is. But the pressure is now on traditional investment companies to lower fees, offer greater transparency and provide good communications allowing everyone to join in.’ Hallelujah.
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Personal Finances News – Are Reddit share buyers Mrs Thatcher’s dream come true?
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