Are you getting bad investment advice from AI? Experts explain how to tell.
Trading and investment forums like Reddit's Wall Street Bets are rife with stories of investors claiming ChatGPT helped them become better trader. Indeed, there are some good uses for the tool.
"AI can literally do everything that it took me six years to learn," the trader Erik Smolinski said, adding that he primarily uses it for data and analysis, specifically slicing through complex data.
But are stories like his the norm, and what are the risks of using AI to tell you how to invest? Business Insider asked a few finance pros for best practices if you want to leverage AI-generated advice.
Take AI trading advice at your own risk
Confirmation bias is a significant concern when investors ask AI models for trading advice, particularly with regards to emerging companies, as there may be less information about them available.
"In my experience, LLMs often pull from a small, self-reinforcing pool of sources when analyzing early-stage or niche projects," said Markus Levin, cofounder of blockchain firm XYO. "That usually means company press releases, founder posts on X, Reddit threads, and carefully managed media appearances."
Levin said that while proprietary models used by trading firms can generate high rates of success, they are different from what's available to retail investors. "They're asking public LLMs questions like, 'what project will 5-10x this year?' and treating the responses as investment insight. That's where the real risk lies," he added.
Eric Croak, president of Croak Capital, was more blunt about his view of AI-generated advice, describing it as "algorithm-assisted gambling."
"I believe what makes AI dangerous with crypto and options specifically is its inability to explain asymmetric risk in real terms," he said, noting that these bots can easily omit important factors such as tax consequences or liquidity concerns.
Croak isn't the only expert who sees high risk in allowing AI bots to make trading decisions.
"The AI tools have zero accountability to a board or the law, so users beware," said personal finance coach and educator Linda Ta Yonemoto. "AI advice that leads to tax penalties or investment losses means you're on your own."
Red flags to look for when seeking advice
So what kind of behavior or response from a chatbot might be a sign it's giving you bad advice?
"I would argue that the biggest red flag is any AI pitch that sounds clean, packaged, or confident without citing exact numbers, timeframes, or dates," said Croak. "If it reads like a marketing blog instead of an investment memo, that is your warning."
He highlighted the danger of generalized recommendations. Tim Newell, founder and CEO of personal finance platform GreenFi, echoed that sentiment.
"The biggest red flag is advice that's too general. Good financial advice, from a person or AI, always starts by understanding your unique situation and goals, rather than offering one-size-fits-all answers," he stated.
Jake Falcon, founder and CEO of Falcon Wealth Advisors, said that if a chatbot appears overconfident in its predictions, a common trait in many AI models, that should be a warning for investors. He added that investors should also watch for a lack of attribution when a bot provides information.
"Reliable advice should include context, limitations, and risk disclosures. Many AI outputs skip this entirely," he said.
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