FCA warns of rise in young investors engaging in high-risk transactions

The Financial Conduct Authority published findings on Tuesday that show how young investors are increasingly engaging in high-risk transactions such as cryptocurrencies and foreign exchange.

Data from the FCA revealed that young consumers investing in high-risk assets were potentially prompted in part by the accessibility offered by new investment apps.

However, according to the watchdog, there was worrying evidence that those higher risk products might not always be suitable for their needs, as nearly two thirds (59%) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle.

Research also found that many investors are motivated by emotions and feelings such as enjoying the thrill of investing and social factors like the status that comes from a sense of ownership in the companies they invest in.

High-risk transactions also provide a challenge, competition and novelty for these young investors.

Around 38% of those surveyed didn’t list any functional reasons for investing, such as wanting to make their money work harder or saving for their retirement among their top three motives

Younger investors displayed a higher degree of confidence and claimed knowledge, but the findings also revealed a lack of awareness of the risks associated with investing with 4 out of 10 not viewing “losing some money” as one of them.

They also had a strong reliance on gut instinct and rules of thumb, with almost four in five (78%) agreeing “I trust my instincts to tell me when it’s time to buy and to sell” and 78% also agreeing "there are certain investment types, sectors or companies I consider a ‘safe bet’”.

Sheldon Mills, Executive Director, Consumer and Competition at the FCA said: “Much of the consumer investments market meets consumers’ needs. But we are worried that some investors are being tempted - often through online adverts or high-pressure sales tactics - into buying higher-risk products that are very unlikely to be suitable for them.

“We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs. Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high risk products.

“We also hope our research will provide valuable insights for other organisations that are involved in tackling harm in this market.”