Determining the right investment risk for your portfolio

Investors are increasingly turning to so called ‘finfluencers’ (financial influencers) for investment guidance. According to Barclays , 23% of Brits are accessing these social media ‘experts’ through community messaging apps and online fora. Many also access them through social media platforms like Facebook, YouTube and TikTok. 

Anyone with a social media account can set themselves up as a finfluencer. These ‘experts’ have a knack for making financial matters sound simple. They may even make recommendations that sound sensible or encourage you to adopt a do-it-yourself (DIY) approach. While not all are scammers, fakes or simply unqualified, they may use financial terminology that could convince you that they know what they’re talking about, give only limited information or claim they’re recommending ‘safe investments’ or ‘low risk investments’ when, in reality, they’re not. 

They may, for example, recommend low-cost investments like exchange traded funds (ETFs). ETFs are investment funds that hold a collection of assets such as stocks bonds or commodities and trade on stock markets. They can offer a cost-effective and straightforward way to invest. But ETFs and other investment products that you come across in your own research or through finfluencer recommendations may not be the right product for you. They could be too risky or not expose your money to enough risk for the growth that you need. The key is linking the investment purposes and objectives to an appropriate level of risk which can be highly personalised to your financial situation.

So, can you trust yourself or social media experts to help you determine how much risk you should take with your money?  While you may think you have the time to do your own research or believe in the finfluencer’s recommendations, what you need to structure for yourself financially is often a lot more complex and challenging, requiring you to be more dynamic than a ‘set and forget’ approach. 

This is because over the course of your financial journey your personal circumstances may change (divorce, retirement, etc.) or you may need to make tweaks to your portfolio because of macro-economic events that are having an impact on markets. Alternatively, you may not need to do anything at all and keep a cool head, even if markets are volatile. But few people have enough knowledge to stay calm in such circumstances, especially if they see the value of their investments falling significantly. 

When it comes to investing, finding the right level of risk appropriate for you and your objectives is essential. However, managing investments on your own can be daunting, especially when financial markets ebb and flow (sometimes quite unexpectedly and aggressively). Relying solely on a DIY approach may not always be the best strategy for you, as professional help can provide valuable insights and make the right adjustments to your investments when needed.  

Here’s why qualified professionals are better equipped to help you assess and manage your investment risk effectively:

1. They give you personalised advice: Professional financial advisors and investment managers can offer tailored advice based on your unique financial situation and goals while finfluencers, by definition aim to get the most views and offer more generic, often incomplete, advice with no ongoing support.
2. Market insight: Professionals have the expertise to navigate complex market conditions and can help you make informed decisions that align with your risk tolerance and investment objectives. They can also provide ongoing support and adjustments to your portfolio as your circumstances change.
3. They can help you balance the risk: Balancing risk in your investments involves understanding your risk tolerance, setting realistic financial goals, and diversifying your portfolio. Diversification helps spread risk across different asset classes, reducing the impact of any single investment's poor performance on your overall portfolio. Influencers may, for instance, recommend that you invest in the ‘Magnificent Seven’, which refers to seven tech related US businesses: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. But what you may instead need is to diversify away from them because you are already invested in a global fund with a high exposure to American indexes, which would typically have these companies listed in them.
4. They help you with a long-term plan: If you try DIY or listen to finfluencers you may only be considering your current financial circumstances or what’s trending now. Professionals, however, will help you develop and maintain a long-term financial plan and adjust it to align with your goals, even if they change. Professionals can also look beyond the trends and research companies or sectors that are likely to do better in the long term and are not just fads.
5. Regulation: Both financial advisers and investment managers in the UK will work for firms which are authorised and regulated by the Financial Conduct Authority (FCA). They will be qualified and will be subject to the FCA’s rules including monitoring and supervision, while finfluencers are not. Some promotions made by finfluencers may even constitute criminal offences if they do not adhere to FCA rules.

While social media experts can sometimes provide useful insights and information, relying solely on social media advice for your investment decisions may not be the best approach. The complexity of financial markets and the need for personalised investment strategies can make professional financial advice invaluable.

Through its combined wealth management, Evelyn Partners has professional advisors and investment managers that can work together to achieve this balance by recommending a mix of investments that align with your risk profile and financial objectives.

To find out more, please book an appointment or speak to your usual Evelyn Partners contact.