Recessions, by definition, are contractions in economic activity. They tend to coincide with job losses and falling stock markets. Severe recessions may bring full-blown bear markets, defined by drops of at least 20%.
While the magnitude of any stock market selloff can never be known, it’s all but a given that markets won’t be making any big gains during a recession.
If you feel that a recession is on the horizon, you’ll likely want to take some steps to help protect your retirement portfolio from any downturns. But if you’re looking for advice, is it best to talk to a financial advisor or an artificial intelligence program like ChatGPT? Here’s the difference between the type of advice you’re likely to get from both.
What Does ChatGPT Say About Recession-Proofing Your Retirement?
The best way to find out what ChatGPT “thinks” about any particular topic is to ask it directly. When asked how to recession-proof a retirement, here’s some of the advice that ChatGPT offered:
- Diversify your investments
- Maintain an emergency fund
- Continuously contribute to your retirement accounts
- Rebalance your portfolio
- Consider conservative investment options as you approach retirement
- Minimize debt
- Seek professional financial advice
- Stay informed and adaptable
The ChatGPT program offered a supporting paragraph for each of these eight main bullet points, followed by a brief conclusion.
What Would Financial Advisors Suggest?
Financial advisors would generally agree with the broad strokes offered by ChatGPT but would suggest that there aren’t enough specific, personalized recommendations in these relatively generic bullet points.
Nicholas Bunio, a certified financial planner with Retirement Wealth Advisors in Berwyn, Pennsylvania, told Marketwatch that “the main area where ChatGPT misses the mark is with its lack of context and ability to include various key factors.”
According to Bunio, the broad parameters that ChatGPT uses to generate its information change on a case-by-case basis. When it comes to planning out strategies, Bunio dubs ChatGPT “too vague.”
For example, ChatGPT’s suggestion to “stay informed and adaptable” is pretty vague and almost meaningless to someone looking to prepare a recession-proof retirement portfolio. “Consider conservative investment options as you approach retirement” doesn’t really address how to adapt to a near-term recession, nor does it specify just how conservative one should be.
Of course, some would argue that this is as far as a generic, AI-generated response should go anyway. A simple AI program like ChatGPT is in no position to offer professional financial advice, especially of the type that can apply to specific individuals.
What Are the Similarities Between the Two?
In the broadest sense, most financial advisors would agree with the generic advice put forth by ChatGPT because it is entirely accurate. Although it doesn’t dwell on specifics, no financial advisor worth their salt is going to argue against such time-honored financial principles as diversifying your portfolio, building an emergency fund, reducing investment risk as you approach retirement and minimizing debt. The suggestion to seek financial advice is also one that is likely to be warmly received by professional advisors.
What Are the Differences?
Financial advisors generally will take the broad strokes suggested by ChatGPT and provide specific recommendations about your actual portfolio. For example, depending on your financial situation, your advisor might suggest that you boost your emergency fund from $10,000 to $20,000, or that you take some profits on specific stocks and offset those taxable gains by selling some of your losers.
Still others might suggest shifting into specific stocks, such as consumer staples companies that thrive even in economic downturns, and out of more economically sensitive stocks, like energy-related companies.
Which Source Is More Reliable?
As with most sources of advice, it’s generally best to draw from the strengths of each option. AI in general, including ChatGPT in particular, is good at reviewing massive quantities of data and sifting through it to pull out the most relevant information.
Financial advisors, on the other hand, are better at offering specialized advice that is specifically tailored to the personal financial situations of their individual clients. Overall, the best option might be to turn to ChatGPT to get a broad outline based on widely available information and then have your financial advisor fine-tune the advice to your specific situation.
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