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FCA study highlights high-risk investment of young people

Hype and competition is pushing young investors towards high risk products the regulator finds.

A Financial Conduct Authority survey reveals how young investors approach high-risk investments such as crypto-currencies and foreign exchange.

It is part of FCA’s new InvestSmart campaign aimed at helping consumers make better informed investment decisions that suit their financial circumstances and attitude to risk.

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 one in five respondents (21%) were considering holding their most recent investment for more than a year, and less than one in 10 (8%) for more than five years.

This is despite 60% of those surveyed saying that they prefer more stable returns than investments that rise and fall dramatically.

Fifty eight per cent of respondents said that constantly hearing about a certain investment on the news, on social media and from other people encouraged them to purchase specific investments.

The research also 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.

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

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

FCA executive director of Markets Sarah Pritchard 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 study was conducted by Opinium and it surveyed 1,000 respondents aged between 18-40 who invest in one or more high-risk investment products.

To coincide with the study publication, 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.

It aims to reach those investors through social media and online, where much of the hype around investment happens.

It 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.

As part of its campaign strategy, the FCA partnered with Olympic BMX gold champion Charlotte Worthington to highlight the need for preparation when it comes to high-risk investments.

Worthington said: “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.”  

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