For help with financial advice and planning, investors have historically reached out to a financial advisor who can help them strategize and make responsible investment decisions.
Nowadays, with the proliferation of artificial intelligence (AI) applications, online services that utilize AI have become an alternative solution for folks seeking guidance with investments in stocks, bonds, commodities, real estate, and other types of assets.
Some companies with AI capabilities, including Magnifi and Wealthfront, are starting to take advantage of the opportunities that AI provides online for investors who want help with their disposable income.
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How do institutional investors use AI?
Institutional investors such as hedge funds and private equity firms have been using AI to transform how they invest their money (and their clients’) for a while now. AI is incorporated into their algorithmic trading or quantitative analysis processes to seek investment opportunities with potential significant returns.
AI can be used in proprietary programs for predictive learning, such as running projections of how a publicly traded company might increase its revenue over a five-year period, for instance.
How can individual investors use AI?
Services for helping individuals with their investment needs are on the rise. Online investment services allow users to link their brokerage or bank accounts and help them with their decisions.
Magnifi and Wealthfront
Magnifi is one company that provides investment services and advice using AI, and its platform can be linked to a subscriber’s existing online brokerage account.
Its AI can help measure a client’s expected return on their stock portfolio relative to a benchmark, such as the S&P 500 Index, and future risk based on factors such as interest rates. Magnifi touts its AI-powered investing assistant’s ability to build a diversified portfolio or help an individual start investing for retirement in as few as five minutes.
Wealthfront, another company in the AI investing space, offers a robo-advisor that can help with stock selection for a portfolio. However, its service now is limited to financial planning, investment management, and personal banking.
Some of these AI-related companies may charge a fee for these types of services, although these fees are sometimes waived depending on the size of an individual's investment account.
ChatGPT
ChatGPT, a popular AI service that debuted in late 2022, can provide answers to questions about investments based on information pulled from a variety of online sources.
The GPT in ChatGPT stands for generative pre-trained transformer, and it uses deep learning to develop conversation-like responses to queries. ChatGPT Plus, the product's paid version, utilizes a host of other GPTs that can help subscribers search for answers that the free service can’t provide.
ChatGPT is useful in providing answers to general questions about investing, forming its responses from a pool of resources that are available online. Ask it, for instance, “What is a stock index?” or “How can I invest in ETFs?” and ChatGPT will provide thorough and accurate responses.
ChatGPT Plus has even more capabilities since it can utilize other GPTs that can perform more complex functions. Upload a spreadsheet of a company’s net income results over a 25-year period onto a GPT, and the AI program can find the biggest expense in a particular year. Upload a publicly traded company’s quarterly report filed with the Securities and Exchange Commission, and the GPT will calculate free cash flow for the period.
One alternative to OpenAI’s ChatGPT is Microsoft’s (MSFT) Copilot on its Bing search engine. Copilot shares the same functionality as the free version of ChatGPT but is branded specifically for Microsoft.
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What are the limitations of investing with AI-based programs?
The free versions of these types of offerings often have limitations, while the paid subscription versions offer a range of services that can perform more complex tasks when instructed.
On the free version of ChatGPT, for example, inquiring about Microsoft’s projected net income for 2024 will result in pulling the answer from a source. On the subscription service, when asked about the same forecast on net income using data from the previous five years, the GPT is unable to make a prediction and instead offers suggestions on calculating a 2024 profit projection, such as using a specific growth rate or method based on historical data.
AI assistants also lack the human touch that comes with talking to financial advisors in person. Empower, a financial services company that also uses AI, argues that you can’t discount the need for a financial advisor who can forge a genuine connection and nurture “a relationship built on trust and empathy.”
All in all, AI is here to stay. In the years to come, we may see a wider range of services available for individual investors to pick from, and with further AI development, these services are likely to perform more complex tasks.
