Your 2025 Investor's AI Refresh
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- 3 minutes
In 1989, MIT published a survey titled AI in the 1980s and Beyond, a collection of essays by 12 members of the MIT staff to ‘provide an inside report on the scope and expectations of current research in one of the world's major AI centers.’ Again, that survey was about AI in the 80s. Evidently, while so many were glued to MTV, others had their eyes on AI. Who knew?
Yes, AI, or artificial intelligence, has been on the minds of many for some time now. And as the technology evolved, so did a growing population’s general sense of foreboding.
Between (c.) 2013 and 2022, Google Books Ngram Viewer graphs a nearly 90° spike in publications that include the term “AI”. Today, AI’s tentacles are reaching right into our personal space, which can involve our finances. Where do you come out on that? While opinions vary, here’s some research that can inform or refresh our view and remind us of the indispensable point where artificial and natural intelligence intersect.
As mentioned in a previous article, we’ve been using automated computer algorithms in stock trading for decades. But what makes AI different from preceding tools? AI is the simulation of human intelligence processes by computer systems. Whereas previous programs were limited to following predetermined instructions, AI can learn and adapt based on input and outcomes, much like humans do.
You likely know that major investment firms, such as Morgan Stanley and Robinhood, already offer AI for client use. It’s being used for things like developing personalized investment strategies that can take into account scores of data points for each individual. And because of the nature of AI, these strategies can be further refined as the model learns more about an investor over time. Portfolios can then be continuously monitored, with automated rebalancing and adjustments made in reaction to market changes, allocation values vs targets, and investor circumstances.
On a more granular scale, AI excels at analyzing investment options and market conditions through multiple lenses simultaneously, weighing factors such as fundamental metrics, news sentiment, and market trends against each other. Using a combination of historical and synthetic data — that is, data generated through hypothetical scenarios extrapolated from actual events — AI can intelligently weight mass amounts of information based on relevance to current conditions. This spells a powerful tool capable of unprecedented pattern recognition and outcome prediction, without the precarious tendency toward confirmation bias that humans are prone to.
But before we entrust all our financial decisions to ChatGPT, there are some serious caveats. The accuracy of AI’s predictions can vary, as it’s dependent on the quality of the data provided, sophistication of the model, time period, and market conditions. Intentional or not, an AI given poor or skewed data can result in an overarching algorithmic bias. Even in a best-case scenario, though, the stock market can’t be predicted with certainty. Then there’s the persistent and puzzling issue of AI “hallucinations,” wherein objectively false information is asserted as true. Add to this the current lack of laws and regulations surrounding the use of AI in finance, and an unwitting investor may expose themselves to financial risks without the same legal protection that surrounds the rest of the financial industry.
So while AI is a powerful tool that can provide valuable insights for investors, it’s not quite in a position to replace humans in financial planning. Its ability to calculate things like probability distributions of possible outcomes and make sense of dizzying amounts of data points can be of massive benefit when used with discretion and sound judgment. And that’s a human thing.
And perhaps, that’s our bottom line. As with most things, discretion and good judgment are pivotal. One thing is for sure: the aforementioned sharp publication spike will likely continue to climb to the exosphere. In the meantime, any foreboding notwithstanding, all of the naturally intelligent humans here at FNA are at your disposal. It’s a pleasure :)
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