Online news and social media can be hazardous to your wealth. Research shows that heavy internet users often know less about investing, trade more frequently, and take on excessive risk—behaviors that can be costly over time.
Of course, correlation is not the same as causation.
(1) Yet several studies shed light on what drives these patterns and suggest how investors can remain active online without undermining their financial decisions.
The internet gives people a false, and costly, sense of their abilities.
Recent research has examined the behavior of online and social media users who share articles with others. Findings indicate that individuals who share content frequently believe they are knowledgeable about the material, even when they have not read it in full. This tendency reflects a broader pattern of overconfidence, where the act of sharing is driven more by agreement with a headline or perceived relevance than by a thorough understanding of the underlying content.
Recently, Reuters found only 51% of people actually read a whole article before sharing it, 26% read part, and 22% just looked at the headline.
(2)
Researchers refer to this false sense of understanding as “subjective knowledge”, which they distinguish from “objective knowledge”, which is the deeper understanding gained by actually reading and processing the content. Recent studies have found that investors whose subjective knowledge significantly exceed their objective knowledge. in other words, those displaying the highest levels of overconfidence are more likely to assume excessive risk within their portfolios.
A related study found that when investors use the internet to answer questions, they often attribute the acquired knowledge to themselves, forgetting that they relied on external sources. This tendency fosters an inflated sense of understanding, leading individuals to believe they know more than they actually do.
Overconfidence created by internet research
leads investors to take on greater levels of risk.
A study, published in the Journal of Financial Planning, found that users of social media were significantly more likely to make 10 or more portfolio trades per month.
(3) Decades of research have shown that investors who trade more frequently often lag the overall market. Researchers also found that social-media users were more likely to invest in high risk crypto assets, microcaps and penny stocks.
Another study found that these overconfident individuals were far more likely to take early withdrawals from their retirement accounts “without understanding the possible consequences.”
(4) Those consequences include early withdrawal penalties, taxes and potentially significant reduction in these individuals’ eventual retirement standard of living.
Resources such as artificial intelligence and the internet can be powerful tools when used wisely but they can also be harmful when misapplied. At WT Wealth Management, our team brings decades of experience navigating a wide range of challenging market environments, including the turbulence of 2000, 2008, 2013, 2018, 2020, 2022, and 2025.
Experience provides perspective.
At WT Wealth Management, our critical committees, such as the Research Committee and the Investment Committee, adhere to a guiding principle: never make a change simply for the sake of change.
In contrast, the online environment often encourages the opposite, with many investors altering their portfolios based on little more than a forwarded article from someone less informed than themselves. Few approaches could be more cavalier with your hard-earned wealth than relying on artificial intelligence, a casual Google search, or an unvetted article as the foundation for investment decisions.
Retirement is too long and too important.
The WT Wealth Management Learning Spotlights are designed to inform, inspire, and foster meaningful dialogue between our clients and the WT Wealth Management team. Our goal is to demystify complex economic and investment topics, offering clear, practical insights that connect financial theory to real-world decisions.
SOURCES
- Causation refers to a relationship where one event (the cause) directly produces or brings about another event (the effect).
- Study: You should read this article about your knowledge based on social sharing before sharing it
TexasStandard.org
- Who Uses Social Media for Investment Advice?
FinancialPlanningAssociation.org
- 4 Ways Social Media Can Destroy Your Savings
MoneyTalksNews.com
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