ChatGPT Says You Might Regret These 3 Investments
Written by
John Csiszar
Edited by
Gary Dudak
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ChatGPT has grabbed headlines over the past year as a sneak peek at the future of artificial intelligence. The AI uses deep learning — a form of machine learning — to produce text that’s easy to understand and relatively comprehensive, seemingly able to answer any questions it’s asked.
When it comes to financial topics, ChatGPT can be a good first step to provide you with basic information that you can check out on your own with more accountable sources, like a flesh-and-blood financial advisor. With that caveat in mind, here’s a look at some investments that ChatGPT says you might end up regretting, due to their high levels of risk.
Penny Stocks
Penny stocks may indeed trade for a few pennies per share, but the general classification refers to stocks with share prices of less than $5. Typically, shares with such low prices are issued by tiny companies with little-to-no operating history or profitability. Share price fluctuations can often be extreme, which attracts speculators and high-risk investors. Penny stocks are also notorious for being manipulated by stock promoters and scam artists.
When asked about the risk level of penny stocks, here are some of the responses provided by ChatGPT:
“Yes, penny stocks are generally considered to be highly risky investments….Here are some reasons why penny stocks are considered risky:
- Lack of liquidity
- Limited financial information
- Volatility
- Lack of regulation
- Lack of track record
- High risk of bankruptcy
- Pump-and-dump schemes
Due to these inherent risks, investing in penny stocks is typically not recommended for novice or risk-averse investors.”
It’s clear from ChatGPT’s response that there are multiple layers of risk involved with buying penny stocks. Remember that these are all additional risk factors specific to penny stocks, on top of all of the other risks that come with investing in stocks in general, such as earnings trends, valuation and the general market environment. As a result, it’s clear that ChatGPT correctly identifies penny stocks as investments that you might end up regretting.
Cryptocurrencies
Cryptocurrencies have made even more noise in the financial news than ChatGPT in recent years, thanks to their incredible gains and losses. Part of the reason for the fluctuation in crypto prices is that there’s a major tug-of-war going on between those who see crypto as ultimately replacing fiat currencies like the U.S. dollar and those who think that crypto is essentially worthless. Here’s what ChatGPT has to say about crypto as an investment:
“Yes, cryptocurrencies are generally considered to be risky investments. Several factors contribute to the high level of risk associated with cryptocurrencies:
- Price volatility
- Lack of regulation
- Security risks
- Market sentiment
- Lack of intrinsic value
- Regulatory changes
- Limited adoption
- New and evolving technology
- Lack of consumer protections
- Speculative nature
While cryptocurrencies have the potential for significant gains, they also come with substantial risks.”
ChatGPT’s final summary is likely understating the risk, even by calling it “substantial.” The laundry list of crypto risks provided by ChatGPT is not only extensive, but severe. Any one of those risks in and of itself could be considered enough to steer clear of crypto, but taken as a whole, they are overwhelming. While things like “lack of regulation” and “speculative nature” are cautionary enough, “lack of intrinsic value” rings a particular bell. ChatGPT is right on the money when it identifies cryptocurrency as an investment that you might regret.
Leveraged ETFs
Leveraged ETFs attempt to provide 2x or 3x the return of an underlying index, such as the S&P 500. They are popular because they promise amplified returns for the same investment amount. Leveraged ETFs have options for both bulls and bears, as you can bet on an underlying index to either go up or go down. But in addition to offering the potential for enhanced gains, they also carry additional risk. Here’s how ChatGPT views them:
“Yes, leveraged exchange-traded funds (ETFs) are generally considered to be highly risky investments….Here are some key reasons why leveraged ETFs are considered risky:
- Magnified volatility
- Compounding effect
- Inappropriate for long-term holding
- Higher costs
- Market timing risk
- Lack of diversification
- Understanding complexity
- Short-term trading horizon
If you are considering investing in leveraged ETFs, it’s essential to understand the risks involved and to use them cautiously and with a well-thought-out strategy.”
Once again, the reasons that ChatGPT outlines for perhaps avoiding an investment are both extensive and severe. Generally speaking, when first searching for an investment, you’re not likely to seek out those that are complex, expensive, volatile and “inappropriate for long-term holding.” While this doesn’t mean that leveraged ETFs don’t have their place — particularly for professional traders — it does mean that investors have to have their eyes wide open about the extreme volatility and short-term nature of these investments. Without this knowledge, as ChatGPT notes, leveraged ETFs might end up causing regret.
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