Financial chat rooms and blogs are the Wild West of financial information, but that doesn't seem to matter to a lot of folks who base their investment decisions on information they pick up on social media sites. And the information gleaned from these sites causes a sizable minority to question the advice they get from their advisors.
A study released yesterday by Cogent Research shows that financial-oriented social media sites increasingly play an important role in how people invest. These sites run the gamut from the community boards and forums at well-known outfits such as Motley Fool and Yahoo Finance to numerous other web sites with more dubious backgrounds. The study looked at people with at least $100,000 in investable assets.
Call it the need for validation, the perpetuation of herd mentality, or simply too many people with too much time on their hands, but people in droves are tuning into financial social media sites to pick up the latest tidbits about their current or prospective investments. Cogent reports that one-quarter of U.S. online adults peruse social media sites centered on personal finance and investing.
According to Cogent, nearly two-thirds of respondents said their decisions are influenced by peer-generated content about investing and finance. More than half say they've increased their investments-and more than one-third have reduced their investments-in a specific company or mutual fund because of other consumers' opinions.
"Social media provides the environment for investors to expand their network of peers to bounce ideas off of and to hear what other people are saying," says Christy White, chief of operations at Cogent, a Boston-based market research firm.
Sometimes, though, these ideas lead investors to question the accuracy of information dispensed by their advisors and by investment firms. Specifically, more than one-third of respondents to Cogent's survey question information from advisors due to social media.