Hype on social media about high investment returns has helped to encourage a new generation of budding investors.

But there are concerns that a ‘knowledge gap’ means people don’t always realise that putting money into high-risk investments – such as cryptocurrency and forex (foreign exchange) – could mean they lose significant sums of money if things go wrong.

To help tackle this, City regulator the Financial Conduct Authority (FCA) has launched an £11 million five-year campaign, called InvestSmart.

The regulator has also put information online at www.fca.org.uk/investsmartto help inexperienced investors learn the basics, and make sure they are prepared to make the jump into investing.

Sarah Pritchard, executive director of markets at the FCA, says: “The InvestSmart campaign is primarily targeting young people, so 18-40-year-olds. What we are concerned about from our research is that there’s a knowledge gap between what they say that their risk tolerance is, and actually where they choose to put their money.

“Of those we surveyed, 60% of people said they preferred more stable returns than investments that rise and fall. But having said that, we see young people putting their money into highly risky activities, crypto and forex being two examples, where young people are much more likely to put their money in those investments than others.”

The FCA’s research found that many people who are investing themselves without taking financial advice don’t realise that losing money is a risk of investment.

Pritchard says: “We’re worried that people can’t spot something that is too good to be true. Again, our research shows that people only start to think something’s too good to be true when it’s promising rates of return of 30% – which is pretty high from where we’re at in terms of interest rates at the moment.

“And so this is a strategy where we’re trying to fill that knowledge and understanding gap. We’re ultimately trying to empower, not inhibit, but we do want to make sure that people really understand the level of risk that they are carrying and make informed decisions.”

The FCA’s research found many younger high-risk investors say they are driven by competition with others, such as friends, family and other people they know.

Pritchard adds: “We think that competition and hype are playing a role here; we’re asking people effectively to ignore the hype, don’t get played.”

The FCA is asking people to ask themselves certain questions before making investments – including whether they understand what is offered; whether the investments are regulated; how comfortable they are with the level of risk; whether they should take financial advice; and whether there will be protection if an investment provider or adviser goes out of business.

Pritchard says: “Breaking it down in those five ways provides five different opportunities for somebody to pause, ignore the hype, and take a sensible decision.”