Be cautious when you encounter investing information on social media. What you see may be incomplete or misleading — and it may not comply with securities laws. Misinformation can also travel faster than facts. Find out more before investing using information you’ve found on social media.
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What are the risks of relying on social media for investing information?
Social media makes it easy for companies to promote themselves and their products and services to you. You might follow a company you’re interested in and see their posts on your feed. Or you may see promoted ads from companies, even if you don’t follow them directly.
There are many social media channels, and you may be on more than one, such as Facebook, YouTube, Instagram, TikTok, Reddit, LinkedIn, or others. Before acting on investing information from any social channel, it’s good to pause first. Learn as much as you can before seriously considering any investment.
There are three main risks of relying on information found on social media:
1. Not enough information
Social media posts or videos are usually brief and to-the-point. They are created to be quickly consumed by investors, often in less than a minute. This leaves little room for detail and nuance. In some cases, key information may be left out entirely. Even if these posts come from experts in the field, they may not have the space to communicate complete information including risks.
Sometimes companies or representatives will also use blogs, message boards or other discussion websites to share investment information or tips. The information found in these spaces is often brief and for a general audience. It is not designed to address your unique circumstances and financial goals, such as your time horizon or risk profile.
2. Misleading or incorrect information
Social media posts often have a positive tone. This helps engage potential customers. They may be so entertaining that the promotional aspect is less obvious. The posts may also end with a strong promotional hook, or call to action, to encourage you to buy a product — now.
These posts are so focussed on promotion that they minimize or omit potential risks. This means you don’t see a complete picture to make an informed decision about investing your money. It’s important to consider both the pros and cons of any financial decision.
Some companies will post information that is simply untrue. This could include financial results that are inconsistent with the data they officially filed with securities regulators. You should be aware of this risk. And make sure you have access to required disclosure documents, such as a prospectus or Fund Facts, before making a decision to invest.
Always check the registration of any person or business trying to sell you an investment or give you financial advice. Checking registration is a quick and easy step that can help you protect your money and avoid fraudulent people or companies. If you have concerns about an investment opportunity you found online, you can reach out to the OSC Inquiries and Contact Centre.
3. Biased and sponsored reports
You may encounter social media posts that link to stories, analyses and other commentary, about a company’s business or investment products. These reports may have been written or published by a third-party analyst, reporter or group not directly affiliated with the person or company making the post. This is often done to add credibility, and marketability, to the company or an investment product.
Companies also sift through the social media chatter. They may link to positive, promotional stories about the company or product and leave out links to less favourable stories. Some stories may seem like independent reporting, but are actually articles the company paid a third-party to write with a positive tone. These posts may recommend particular products over others as a way to entice investors. Or the posts may only report on the favourable aspects of the company and leave out the negatives.
Information to help you decide about an investment should be factual and balanced. This means unfavourable news about a company should be communicated as clearly as favourable news. Read the fine print attached to any stories or reports about an investment to find out if the coverage is sponsored. If it is sponsored content, it may be biased.
Caution
Social media also makes it easy to connect with thousands of other investors to share opinions and experiences with certain companies or products. If you’re gathering information online, remember everyone has their own investment objectives, time horizons, risk profile. What works for some investors may not be right for you. If you have questions about investing in a particular company or product, considering speaking to a registered financial advisor. You can ask them questions about how an investment would fit with your objectives and risk tolerance. Learn more about working with an advisor.
How can you safely use online information to make investing decisions?
Be very cautious with any information you find online. If you’re thinking about investing in a company or product that you saw promoted online, take these steps to make an informed decision:
- Research companies and products – Posts on social media cannot provide you with all the information you need to make informed decisions about investing. Take the time to research the company or product and learn the risks that accompany the investment. Review documents like Fund Facts. Evaluate companies before investing.
- Consider the source – Think critically about who is providing financial information on social media. Are they an expert in their field? Or are they being paid or sponsored to promote a product they may know nothing about. Social media influencers who share information about investing are called “finfluencers” — financial influencers whose media accounts are focused on money and investing. Be cautious about taking financial advice from finfluencers.
- Speak with an advisor – Advisors can answer questions about particular investment products and assist you with selecting investments that can help you achieve your financial goals. Find out what to expect from an advisor.
- Check registration – Always check the registration of any person or business trying to sell you an investment or give you financial advice.
- Contact the Ontario Securities Commission – If you have a question about investing, working with an advisor or fraud, contact the OSC Inquiries and Contact Centre.
OSC research found social media financial influencers, or “finfluencers” have considerable influence on the decision making of retail investors. Find about more about how you may be persuaded by finfluencer posts.
What documents should you check before investing in a company?
A good way to verify investing information you see on social media is to look at the company’s disclosure documents. You can find detailed, official information about companies and products in a few places. Considering checking these resources:
- System for Electronic Document Analysis and Retrieval (SEDAR+) – An electronic system used by public companies and investment funds across Canada to officially file disclosure documents. These disclosure documents contain information that can help you assess a company’s management, products, services, finances, prospects and risks. You can access this information free of charge. Learn more about disclosure documents.
- System for Electronic Disclosure by Insiders (SEDI) – A filing system that collects the reports of all securities transactions made by people who are considered insiders of a company (for example, officers and directors of a company). You can access this information free of charge.
- Fund Facts – If you’re interested in purchasing a mutual fund, you can check its Fund Facts for a brief summary of key information. A Fund Facts document breaks down some important facets that investors should know about the fund, such as performance history, investments, risk rating and the costs associated with owning it. See a sample Fund Facts document.
- Company website – Most publicly traded companies post annual reports on their websites. Annual reports can provide information on whether a company is making or losing money and why. These reports may include financial statements, details about the company’s operations, comments from executive staff on how the company performed over the past year, and industry trends and events that may have affected stock performance.
Generally, securities offered to the public in Ontario must be offered with a prospectus — a document that provides detailed information about the security and the company offering it. However, there are some exemptions to this rule that allow securities to be offered without a prospectus — these are called prospectus exemptions. Learn more about the exempt market and the different types of prospectus exemptions.
Summary
Social media is a popular place to see information about investing and different financial products. But before making any investment based on what you have seen on social media, remember:
- Many companies use social media to share short posts, videos, or blogs that don’t give the full picture.
- Some companies or individuals may only share positive information about a product and omit anything negative. Or they may pay third parties to write positive reviews. Always consider the potential biases.
- Social media information is for a general audience and doesn’t reflect your unique investing needs and risk tolerance.
- Treat social media as the first step in gathering information about investing, rather than the only step. Use it as a starting point to research products or companies.
- Always check registration of anyone trying to sell you an investment.
- You can use SEDAR+, SEDI, Fund Facts, or a company’s website to get more information about a potential investment.
