3 Dangers of Getting Investing Advice on TikTok

With its short videos, TikTok has become a popular place for bite-sized financial advice. That includes investing advice. It’s often published under the hashtag StockTok, and videos with this hashtag have currently racked up 3.5 billion views.

The StockTok craze is understandable. Some investing advice can be long and dull; StockTok is the opposite. Even if the content itself is appealing, TikTok isn’t the place to go for investing advice or stock tips. WallStreetZen recently investigated the StockTok phenomenon, and it found some serious issues.

1. Nearly two out of three stock videos are misleading

For its investigation, WallStreetZen reviewed transcripts of 1,089 TikTok videos with stock-related hashtags. It found that 63% are misleading. Videos were marked as misleading if any of the following were true:

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  • They didn’t have a disclaimer.
  • They encouraged viewers to invest in a particular stock asset.
  • They implied 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 always problematic. For example, if a video recommends that viewers aim to invest 10% of their income, that would be marked as misleading under the final criteria. But sending a portion of your income to your brokerage account and investing it is a good financial habit. Advice like that doesn’t lead investors astray.

It’s still alarming that such a large portion of videos were marked as misleading. And while it’s possible that these don’t all provide bad advice, WallStreetZen’s analysis found that many of them do.

2. Advice often pumps specific stocks and suggests unrealistic returns

Of the advice classified as misleading, 36% push viewers toward specific stocks. In addition, the vast majority (95%) of the stock content on TikTok has no disclaimers.

Disclaimers are a crucial part of stock advice. Trustworthy advice will include a disclaimer letting viewers know if the content creator holds a position in any of the mentioned stocks, or if they’ve been paid to promote anything. This lets the viewer know if the content creator has a financial incentive behind their advice. Most of the TikTokers who recommend stocks conveniently omit this information.

WallStreetZen also found that 22% of StockTok videos imply a return on investment. The average potential annual return that they advertise is 600%.

Any time someone suggests such a massive potential return, it’s a scam. The S&P 500 (an index of 500 of the largest publicly traded companies) has an average annual return of about 10%. In the last 50 years, its highest return in a single calendar year is 34%. There’s no investment where you can realistically expect annual returns of 20% or higher, much less 600%.

3. Less than 1% of stock influencers on TikTok have relevant qualifications

There’s no barrier to entry to be a stock influencer on TikTok. Only 0.8% of the TikTokers who give stock advice have finance-related credentials. If you watch videos from 100 different stock influencers, the odds are that only one of them will have a background in finance.

That makes it even more important to do your homework before you follow their advice. Anybody can start sharing stock tips, even if they opened their first brokerage account yesterday.

Because hardly anyone on TikTok has finance-related credentials, bad advice is common. And some supposed advice is just a flat-out scam. A whopping 70% of stock influencers self-promote their services, which are often systems or courses you can use to trade stocks just like they do. It’s always worth asking yourself: If they were really making so much money by investing, why would they need to sell these services in the first place?

There are financial influencers on TikTok who give sound advice. Unfortunately, they’re a drop in an ocean of scams and misinformation. You’re better off going elsewhere for investing advice, or thoroughly vetting any stock influencers you follow to make sure they’re trustworthy.

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