Beware of Blindly Following Influencers’ Financial Advice

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Mr. Abhishek Murarka highlighted an intriguing example on Twitter involving an influencer’s investment recommendations. The influencer had tweeted in December 2020 that 40% of their disposable income was allocated to individual stocks, with 25% invested in U.S. companies like Shopify, Square, Zoom, and Tesla. Abhishek pointed out that, by now, the value of these stocks may have halved. While this loss might not
significantly impact the influencer’s overall wealth due to multiple income sources, it could place those who
followed their advice into a challenging financial position.

The Securities and Exchange Board of India (SEBI) has raised concerns about the risks of following financial
advice from social media without due diligence. Financial literacy remains a significant issue in India, with only
27% of adults—and just 24% of women—meeting the Reserve Bank of India’s minimum standards.
Additionally, a survey by S&P found that over 75% of Indian adults and 80% of women lack a solid
understanding of basic financial concepts.

I recall a Twitter Space in June 2021 titled “Basic Financial Advice,” where the host, despite a large follower
count, demonstrated a concerning lack of financial knowledge. For example, when asked about investing
abroad, he dismissed it as unnecessary and suggested focusing solely on Indian stocks, ignoring the benefits
of global diversification and the long-term performance of U.S. markets.

1. Misunderstanding Market Trends: The U.S. market has experienced a prolonged bull run since March
2009, not just a one-year surge.

2. Limited Perspective: Restricting investment opportunities to the U.S. ignores the benefits of global
diversification. Markets outside India, including sectors not listed locally, offer valuable investment
opportunities.

3. Retirement Planning: Advising retirees to avoid equities ignores the necessity of having equity in a
portfolio to combat inflation and ensure long-term growth. A balanced portfolio, including equities, is crucial
for sustaining wealth through retirement.

Relying solely on social media for financial advice can be detrimental. Platforms like Twitter, TikTok, Reddit,
and Instagram are filled with opinions that may be well-meaning but lack accuracy and depth. Not everyone
who shares financial tips is qualified or knowledgeable.

Before acting on social media advice, consider these questions:
– Am I feeling pressured into making an investment decision?
– Is this investment aligned with my financial goals, or am I reacting to fear of missing out?
– Do I fully understand this investment?
– Has the stock or fund already experienced a significant price increase?
– Does the investment seem risky or like a gamble?
– Are the claims about returns realistic, or do they sound too good to be true?

As Abhishek Murarka notes, many influencers may not possess the in-depth financial knowledge required to
provide sound advice. Ensure any financial decisions you make are informed and aligned with your personal
goals and circumstances.