TikTok has become a popular place to provide simple financial advice in short videos. That includes investment advice. Often published under the hashtag StockTok, videos with this hashtag currently have 3.5 billion views.
The StockTok craze is understandable. Some investment advice can be long and boring. StockTok is the opposite. Even if the content itself is engaging, TikTok is not the place to get investment advice or stock tips. WallStreetZen recently investigated the StockTok phenomenon and found some serious issues.
1. Nearly 2 out of 3 stock videos are misleading
For our research, WallStreetZen examined the transcripts of 1,089 TikTok videos with stock-related hashtags. They found that 63% were misleading. A video has been marked as misleading if any of the following apply:
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- They had no disclaimer.
- They encouraged viewers to invest in specific stock assets.
- They imply a return on investment.
- They encouraged viewers to invest a certain amount of their savings or income.
To be fair, some of these aren't necessarily problematic. For example, if a video recommends the viewer to invest his 10% of his income, it will be marked as misleading in the final standards. However, it is a good financial habit to transfer some of your income to a brokerage account and invest it. Advice like this will never mislead investors.
It remains alarming that so many videos were marked as misleading. While they may not all be providing bad advice, WallStreetZen's analysis found that many of them are.
2. Advice often stimulates certain stocks and suggests unrealistic profits.
36% of advice classified as misleading steers viewers towards a specific stock. Furthermore, the majority (95%) of TikTok's stock content does not have a disclaimer.
Disclaimers are an important part of stock advice. Reliable advice includes a disclaimer that lets viewers know if the content creator holds a position in any of the stocks mentioned or is being paid to promote anything. Masu. This allows viewers to know whether there is a financial incentive behind the content creator's advice. Most TikTokers who recommend stocks conveniently omit this information.
WallStreetZen also found that 22% of StockTok videos suggest a return on investment. The average annual return they advertise is 600%.
Whenever someone suggests the possibility of such huge profits, it is a scam. The S&P 500 (an index of the 500 largest publicly traded companies) has an average annual return of about 10%. The highest return in a single calendar year over the past 50 years is 34%. No investment can realistically expect to return more than 20% a year, much less 600%.
3. Less than 1% of TikTok stock influencers have relevant qualifications
There are no barriers to entry to becoming an equity influencer on TikTok. Only 0.8% of TikTokers offering stock advice have financial qualifications. If you watch videos of 100 different stock influencers, there's a good chance that he's the only one with a financial background.
This makes it even more important to do your homework before following any advice. Anyone can start sharing stock tips, even if you opened your first brokerage account yesterday.
False advice is common on TikTok as very few people have financial qualifications. And some of what appears to be advice is just flat-out fraud. A whopping 70% of stock influencers self-promote their services, and those services are often systems or courses that you can use to trade stocks just like them. It's always worth asking yourself. If you're really making a lot of money on your investment, why sell these services in the first place?
TikTok has financial influencers who can give you sound advice. Unfortunately, they are just a drop in the ocean of fraud and misinformation. It's better to go elsewhere for investment advice or thoroughly vet the stock influencers you follow to see if they can be trusted.
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