Artificial intelligence (AI) used to be something that more people feared than embraced, no doubt thanks to futuristic science fiction movies that portrayed it as a group of out-of-control machines turning on humanity. The reality, however, is that AI has already become a powerful force in American society, and it’s only going to grow — particularly in the investment world.
If you’re an investor, you probably already use artificial intelligence, perhaps without even knowing, in the form of investment apps, online trading or even simply googling information on various stocks. But can AI actually help you make more off your investments? It certainly can. Read on to learn more.
Research
One of the strengths of AI in general is assembling and presenting information. If you know what you’re looking for or interested in, AI can do the heavy lifting of researching vast amounts of data and providing you with only the information that you want.
From there, you can do your own analysis of the relevant content without having to waste hours of your time sifting through the chaff. As time is money, this is an indirect way that AI can help you make more off your investments.
Personalized Analysis
Beyond simply collecting relevant research, AI is growing in capability to the point that it can provide you with a personalized analysis of your financial situation and even offer tailored investment recommendations. AI is becoming more adept at pattern recognition and problem-solving, two skills that can help determine what type of investor you are and what investments match up best with your profile.
While you should always take the recommendations of a computer with a grain of salt — particularly when it comes to your finances — AI can help provide you with the best options available based on your demonstrated investment objectives and risk tolerance.
Professional Portfolio Management
Artificial intelligence used to be a relative newcomer to the world of professional portfolio management, but its popularity has exploded. Called by any number of proprietary names, the robo-advisory industry has ballooned to nearly $3 trillion in assets — not bad for a technology that has only been in existence for about 15 years.
With the help of AI, robo advisors analyze a client’s investments objectives and risk tolerance, typically through a self-administered questionnaire, and then select an optimized portfolio of investments — usually consisting of exchange-traded funds — that maximize returns while staying within an appropriate risk envelope. This is a particularly helpful way to go for newer investors or those without the knowledge or desire to analyze data and trends to select their own investments.
Fees
For the most part, the reduction in the amount of fees you’ll pay is a major benefit of using AI to help with your investments. Rather than paying a full-service broker — directly or indirectly — to research investments for your portfolio, for example, you can have an AI search engine or program do all of the work for you and present it to you for free.
If you want to use a robo-advisor to actually pick and monitor your investments, it will generally only cost you about 0.25% of your assets per year, or even less. If you use an online trading platform or app — which also use AI — you may pay as little as $0 in commissions for most stock and ETF trades. All in all, there’s no denying that AI has helped to reduce costs in the investment industry.
The Bottom Line About Using AI for Investments
The rapid growth of artificial intelligence has transformed the investment industry in many ways, and it seems likely to continue to do so in even more dramatic ways going forward. AI’s capability to rapidly compile and analyze data is a huge benefit for investors, as is its proven ability to reduce costs for both trading and portfolio construction and management.
However, on the downside, artificial intelligence still has a ways to go before it can be completely relied upon to help investors actually make more money. It’s one thing to use AI to provide you with data or create a portfolio of ETFs for you, but it’s another to ask an emerging technology — such as ChatGPT — to pick stocks for you, to help you make tax and estate planning decisions, or to completely understand all of the nuances of your own unique personal financial situation.
Investing is part art and part science, and while AI can help you with the science part of the equation, it still needs to learn more about the art of investing to make more complicated decisions. It can certainly save you time and money, providing you with valuable information that you can use to help yourself make more money. But any information you receive from AI should be thoroughly vetted before you put your life’s savings into its recommendations.
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