3 Risks of Getting Investment Advice from TikTok

Through short videos, TikTok has become a popular place to offer simple financial advice. This also includes investment advice. These are often posted under the StockTok hashtag, and videos containing this hashtag have now reached 3.5 billion views.

The StockTok craze is understandable. Some investment advice can be long and boring. Stocktalk is the opposite. Even though the content itself is compelling, TikTok isn’t the place to go for investment advice or stock tips. WallStreetZen recently looked into the StockTok phenomenon and found some serious problems.

1. Almost 2 out of 3 stock videos are misleading.

For the study, WallStreetZen reviewed transcripts of 1,089 TikTok videos containing stock-related hashtags. 63% found it misleading. Your video has been flagged as misleading if any of the following apply:

• They had no disclaimer.
• Viewers were encouraged to invest in specific stock assets.
• They implied a return on investment.
• They encouraged viewers to save or invest a certain amount of their income.

To be fair, some of these aren’t always a problem. For example, if your video encourages viewers to aim to invest 10% of their income, this will be flagged as misleading by our final criteria. However, sending a portion of your income to a brokerage account and investing it is a good financial habit. Such advice will not lead investors astray.

It’s still surprising that so many videos have been flagged as misleading. While they may not all be giving bad advice, WallStreetZen’s analysis shows that many of them are.

2. Advice often promotes specific stocks and suggests unrealistic returns.

36% of advice classified as misleading steers viewers towards specific stocks. Moreover, the majority (95%) of TikTok stock content does not have a disclaimer.

Disclaimers are an important part of stock advice. Trustworthy advice includes a disclaimer informing viewers whether the content creator holds a position in the stocks mentioned or has been paid to promote them. This lets viewers know if content creators have a financial incentive behind their advice. Most TikTokers recommending stocks conveniently omit this information.

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

If someone offers such huge potential profits, it’s a scam. The S&P 500 (an index of 500 large publicly traded companies) has an average annual return of about 10%. Over the past 50 years, the highest single-year return was 34%. Realistically, there is no investment you can expect to see an annual return of more than 20%, let alone 600%.

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

There is no barrier to entry to become a stock influencer on TikTok. Only 0.8% of TikTokers providing stock advice have financial qualifications. If you watch videos from 100 different stock influencers, there’s a good chance that only one of them will have a finance background.

That’s why it’s even more important to do your homework before following their advice. Anyone can start sharing stock information, even if you opened your first brokerage account yesterday.

Bad advice is common on TikTok because few people have financial qualifications. And some of the supposed advice is just straight up scam. A whopping 70% of stock influencers self-promote their services, which are often systems or courses that can be used to trade stocks. It’s always worth asking yourself: If you’re making so much money from your investments, why sell these services in the first place?

TikTok has financial influencers who offer sound advice. Unfortunately, they are mired in a sea of ​​scams and misinformation. You may want to go elsewhere for investment advice, or you may want to thoroughly research the stock influencers you follow to make sure they are trustworthy.

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