Should You Invest in Best Mutual Funds Recommended by Social Media Influencers?

Recently, I came across a social media influencer dishing out investment advice on YouTube. She suggested investing in mutual funds; interestingly, she even mentioned that one could expect around 16% guaranteed returns. The other day, my younger cousin showed me a reel on Instagram where an influencer talked about the best mutual funds to invest in and these mutual funds will double your investment amount. And to my surprise, his 8,000 followers seemed to be involved in this investment advice. This prompted me to inform my readers about why they should avoid investment solutions advised by social media influencers.

A finance influencer or finfluencer is someone capable of influencing investment or money management decisions based on the content they create (videos, tweets, Instagram posts etc.) on various social media platforms. Unfortunately, if you follow their advice blindly many of them are capable of having a negative impact on your investment portfolio.

To begin with, none of the above finance influencers, or "finfluencers," acknowledged the risks associated with investing in market-linked mutual funds. The main concern is that they are delivering misleading information to their followers, which may be disastrous for their investment portfolio and financial health.

Also, the current macroeconomic challenges, rising interest rates, high inflation, and supply chain issues associated with the ongoing Russian-Ukraine conflict are the factors causing intensified market volatility. Given the current headwinds, market experts have advised investors to lower their return expectations; however, the above-mentioned finfluencer claims a guaranteed higher return, which is misleading for investors, especially novice investors who may fall prey to this and make dubious investment decisions.

Social media influencers are not certified to provide recommendations on money management. There are so many influencers amassing a following on social media, but that doesn't make them market experts. They can discuss their investing experiences and what worked for them, but they cannot give investment advice.

For example, if you are unwell, would you seek medical advice from social media or visit a doctor? A doctor right? as they hold expertise in the medical field. Similarly, registered investment advisors or financial professionals can help you create financial plans and provide investment advice. You should use their professional services rather than someone who gives you random advice based on market hype without conducting any market analysis.

However, the tech-savvy generation of millennials and Gen Z investors are addicted to social media and are influenced by the content on a large scale. They follow social media to decide which clothes to buy, what food to eat, and even which landmarks to visit on holiday. So, no doubt they let these social media platforms and finfluencers guide them on which mutual funds or assets to invest in. Here are a few things to look out for when dealing with a financial influencer who offers investing advice:

1. Don't Follow Them Blindly

The rise of investment influencers on social media platforms has been fuelled by a surge in youthful and overconfident investors, but following their advice blindly is not a solid strategy. It is natural to assume that you could trust an influencer who has a large number of followers. But that does not necessarily mean that they hold expertise in finance. In the case of the YouTuber mentioned above, she is simply giving her opinion that Mutual funds will provide a guaranteed return at 16% but has no data to support the same and hence cannot be blindly believed.

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2. Check their Credentials

Always double-check the finfluencers' credentials. This means that a financial influencer should be a finance industry specialist or authority who can provide investment advice. A financial influencer should have some knowledge or understanding of the finance field and the market. Not necessarily have an Ivy League degree in finance, but some degree of education and experience in the field of finance. One simple way to find out is to check the person's LinkedIn profile.

3. Look for Red Flags

It's possible to avoid clickbait content and unreliable advice from social media influencers if you look around a little more prudently. However, some red flags should alert you like if a finfluencer uses words or phrases like 'double your money,' 'guaranteed return,' and so on. Consider this is something misleading as no mutual fund offers guaranteed returns and doubles your money quickly, all mutual fund investments are subject to market risks. Also, do not trust finfluencers providing any quick money-making techniques or recommendations.

4. Conduct your own research

Every mutual fund does not invest only in stocks, and certainly, a mutual fund cannot give guaranteed returns. Before investing in any product, it is critical to learn the fundamentals. To comprehend the suitability of any type of mutual fund in your portfolio, a thorough study and market research is required. While expressing thoughts on stocks, mutual funds, and other topics, social media financial fluencers lack competence and undertake little or no research.

Even if you find anything online that provokes your curiosity avoid making hasty investment decisions, you should always conduct your own research. You must assess your risk profile, financial goals, investment horizon and invest accordingly. An investment that is right for someone else may not be right for you. Always take professional advice if you do not have the time or expertise.

5. Ensure your investments are aligned to financial goals

I have seen many social media influencers that provide a list of best mutual funds to invest in, but they do not provide investment solutions based on your financial goals. Investing in mutual funds is not a one-size-fits-all approach; each investor has unique financial goals, and aligning your investments to these goals is a critical step in financial planning. Social media influencers tend to attract more followers in order to boost their following and monetization features, which leads to mainly using eye-catching content that isn't tailored to your financial goals.

As a result, investors should avoid imitating finfluencers' investment advice and instead invest in the best mutual funds with a proven track record to achieve their envisioned financial goals.

On the contrary, some seasoned investors and market experts may be using social media to share their knowledge and experience with the public at large. However, for the vast majority of influencers with social media followings in millions, the primary motivation for providing this "free" financial market information is to monetise their fan base by partnering with products or financial companies. However, all this information about social media finfluencers should not lead you to believe that all the content you see on YouTube, Instagram, or Twitter is false or misleading.

However, there are some excellent resources for learning finance and investing lessons on social media from altruistic individuals who want to share their knowledge and experiences. You can also communicate directly with seasoned investors with decades of market expertise, global investors, regulated money managers, analysts, and good advisors on social media platforms that you may not have met in real life. To get these benefits, you must intentionally identify, filter, and ignore the noise from sponsored content while digesting some valuable information.

We understand that not everyone holds the expertise to filter worthwhile market information and this is where financial professionals and institutions/firms that do rigorous research and give relevant data through their exclusive research services come into play. Mutual funds are the ideal option for retail investors to build wealth, achieve financial goals, and maintain financial freedom.

Thus, investors seek to invest in best mutual funds that offer significant risk-adjusted returns and assist in wealth creation in the long run. The best mutual funds should be able to perform well in both bullish and bearish market conditions. However, the important question here is, which are the best mutual fund schemes for 2022?

[Read: How to Get Rich with the Best Mutual Funds in 2022]

When it comes to investing in the best mutual funds, nothing beats rigorous research that involves analysing various quantitative and qualitative parameters, plus the technical market analysis. If you wish to select worthy best mutual fund schemes, subscribe to PersonalFN's unbiased premium research service, FundSelect.

As a bonus, you get access to PersonalFN's popular debt mutual fund service, DebtSelect. Here we give high weightage to schemes displaying worthy portfolio characteristics. We avoid debt mutual fund schemes that chase higher yields by taking undue credit risk with substantial exposure to instruments issued by private issuers.

PersonalFN recommendations go through a stringent process that assesses both quantitative and qualitative parameters, providing you with Buy, Hold, and Sell recommendations on equity and debt mutual fund schemes. Read here for more details...

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S - Systems and Processes

M - Market Cycle Performance

A - Asset Management Style

R - Risk-Reward Ratios

T - Performance Track Record

This stringent process has helped our valued mutual fund research subscribers to own some of the best mutual fund schemes in their investment portfolio with a commendable long-term performance track record.

PersonalFN's FundSelect service is apt if you are looking for insightful guidance and recommendations on some worthy mutual funds.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst