Josh Brown thinks this brokerage stock is going 'way higher'
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AI Set to Play More of a Role in Investment Selection
You can't spell 'advisor' without 'A' and 'I.' For that matter, you can't spell 'fiduciary' without them, either. Today, that statement might seem preposterous. But recent surveys show that over half of advisors see generative artificial intelligence as having a place in investment decision-making, and many also expect their jobs to change because of it. A prominent economist who studies AI, MIT's Andrew Lo, also told Bloomberg earlier this month that the technology will likely be capable of running money in a fiduciary capacity within five years. That, he told the publication, would be 'agent AI where we have agents that are working on our behalf and making decisions on our behalf in an automated fashion.' READ ALSO: New Stablecoin Bills Are Normalizing Crypto for Advisors and Maintaining Client Relationships During Off-Hours Generative Generation Just under half (48%) of 113 advisors surveyed in April by Interactive Brokers agreed with the statement 'generative AI will redefine the job of financial advisors within five years.' Another 25% were neutral, with 27% disagreeing, according to the report, which was published last month. More widely, advisors have been using AI for tasks like meeting notes, and 62% of those in the survey said that AI will make them more efficient (only 8% disagreed). And when it comes to advising clients, 51% said AI has a role (40% were neutral and 9% disagreed). The CFP Board published an ethics guide on AI for advisors earlier this year, noting that advisors 'must account for AI limitations and risks, including inaccuracies or 'hallucinations.'' The technology has a lot of potential for investment-related research, such as aggregating information or pulling in data sources that an advisor wasn't aware of, said Sara Cortes, assistant general counsel at the CFP Board. 'The main consideration for advisors using it for investment research and selection specifically is to really understand what assumptions and estimates might be going into that AI and what the data set is, how the machine learns,' she said. 'The thing they really need to keep in mind … is that they're ultimately responsible for the investment selection in the client's best interest.' Most investors are leery of AI, but there are demographic differences, data published in July by FINRA show: Only 20% of investors said they would be interested in getting financial advice from AI, while 21% weren't sure, and 59% would not want such advice. Men were more receptive to that than women (25% versus 14%), as were younger investors and non-white investors. Trust the Smart Robots, but Verify. Just as there are risks associated with AI, there are risks with not using the technology and becoming aware of its benefits and limitations. 'We want advisors to feel empowered to use this as a tool,' Cortes said. 'The risks are relying a little too much on the AI and not listening to that voice inside your head saying 'there's something a little bit off about this,' and trusting that.' This post first appeared on The Daily Upside. To receive financial advisor news, market insights, and practice management essentials, subscribe to our free Advisor Upside newsletter. Sign in to access your portfolio
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A self-made millionaire says he doesn't believe in index funds — and explains why he doesn't see options as higher risk
Jason Brown rebuilt his wealth through options trading after early investment losses. Brown's skepticism of traditional investing led him to focus on self-directed options. He emphasizes understanding options to mitigate risk and protect financial assets. Jason Brown built wealth his own way. After a disappointing early experience handing over his money to professionals — he took $2,000 worth of high school graduation money to the bank to invest and, two years later, his account had dropped to $700 — he decided if he was going to lose money, at least it would be on his own terms. As a college student, he started buying stocks and grew his modest savings to six figures before losing it all on one trade. After selling his car, moving back home, and taking a job at Verizon selling cellphones, he started trading again — this time, with a set of investing principles that would prevent him from going broke again. Brown, 43, gradually rebuilt his portfolio and hit the seven-figure mark by trading options. Business Insider confirmed his net worth by reviewing an account summary that shows his 2024 investment activity. An option is a type of financial contract giving you the right, but not the obligation, to buy or sell an asset at a specific price before a specific date. Options are generally more complex than traditional investing, such as buying and holding stocks or index funds, but Brown's adamant that traditional investing doesn't cut it. "I don't really believe in index funds," he told BI. He became skeptical after digging into his 401(k) plan when he worked for Verizon. Specifically, he looked at the fund his 401(k) money was invested in. It was comprised of about five major companies like Apple and Google that he knew and trusted, but "the rest of it was junk," he said. "That's when I was like, I want to move it over to a self-directed IRA, and I just want to pick these five companies. Why are they forcing me to buy all this other stuff?" Index fund investing has helped many regular investors build wealth, but for Brown, who prefers to be more hands-on with his investments, options trading made more sense. 'Options are not risky. The way people use them is risky.' Brown, who trades full-time, runs a financial education company, and is the author of "Five-Year Millionaire," believes there is a lot of misunderstanding around options trading. "When people don't understand options, they'll say, 'That's risky what he's doing.' The reality is, it's risky not knowing how to use options," he said. Stock options can be compared to renters' or car insurance, depending on whether you're buying or selling options and whether you're using calls or puts. For example, buying a put is like buying car insurance. You pay a premium (the cost of the put), and hope nothing bad happens (the stock doesn't crash), but if it does, you're protected: You can sell the stock at the agreed-upon price (the strike price), just like insurance would reimburse you if your car gets totaled. "If options are so risky, then stop paying your homeowner's insurance or your car insurance, because that's what you're doing every month when you cut a check: You are buying a put option to protect yourself in case something happens," said Brown. "Why don't we buy protection for our investment accounts when a COVID-19 happens, when an '08 real estate market crash happens, when a tariffs situation happens, and the market tanks?" Options can require careful timing and market-watching, and Brown knows he won't make money on every trade. "You cannot be right on every trade," he said, which is why he has a robust emergency fund, multiple revenue streams, and follows investing principles, including: Know your "I'm wrong level." When he lost everything in his early 20s, he never considered his "I'm wrong level," he explained. "I only thought, 'What would happen if this goes right? I'm getting a condo.' I never stopped to think, 'If I'm wrong, I'll lose it all and I have to move back home.'" Now, he knows exactly when he needs to cut his losses and shut down a trade. "Options are not risky. The way people use them is risky," said Brown. "You can use them to gamble and treat it like a casino, or you can use them to protect some of your most valuable assets — protect your accounts and grow your accounts." Read the original article on Business Insider
