UK Competition Watchdog Cautions Young Traders On Risky Investments

New research from the U.K.’s competition watchdog indicated that younger traders are increasingly taking part in risky investments without fully understanding the possible pitfalls and consequences, according to a Financial Conduct Authority (FCA) press release on Tuesday (March 23).

The research from the FCA examined why and how people are jumping into high-risk investments like cryptocurrencies and foreign exchanges. Findings indicate that these new investors are largely younger and more diverse, and are comfortable putting money into riskier offerings. Research also showed that investors were prompted to make investments in part by the easier accessibility offered by investment apps.

However, there is mounting evidence that risky investments aren’t always the best move for less experienced investors. Almost 60 percent of these traders surveyed said that a loss would negatively affect their lifestyle today or in the future. 

The research also showed that many made investment decisions based on emotions. Novelty and competition have surpassed traditional investment decisions, which are typically based on strategy and goals. Almost 40 percent of respondents did not have even one functional reason for their top three investments, the FCA’s research indicated.

“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,” Sheldon Mills, executive director, consumer and competition at the FCA, said in a statement.

“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,” according to the FCA.

In the U.S., the Securities and Exchange Commission (SEC) issued a warning earlier this month that investors should take a deep look before putting money into celebrity-backed special-purpose acquisition companies (SPACs). The SEC said that IPOs and SPAC transactions are not the same and have different risks associated with them. 

The Casper mattress company, launched in 2014, went public last year, with investments into the startup buoyed by social media influencers. In preparing for its IPO, the New York sleep startup warned potential investors that the company could not predict future influencer messaging.