4 Clever (and Less Risky) Ways To Use AI for Investing
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AI is especially useful if you think of it as a tool to support and supplement your investments but not to replace professional advice or other practical expertise.
Here are four ways to use AI for investing that are not only useful but actually quite smart.
Use AI To Automate Your Portfolio
Automated, AI-driven online advisors ('robo-advisors') may not be able to give you a nuanced overview of your specific portfolio, but they can help you make some basic decisions including how to generally allocate assets, how to rebalance a portfolio or how to minimize your tax impact.
From Fidelity Go to Betterment, there are many finance-based robo-advisors available to set you up with information that can help you assess and even automate aspects of your portfolio. You don't, however, want to make any big changes without first running them by a financial professional.
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Use for Investing Research, but Always Fact Check
One of the best uses of AI in investing is to help educate yourself, whether to define terms (dollar-cost averaging, anyone?), understand general market trends ('What's a bull market?') or summarize lengthy financial information (a company's earnings call).
Tools like Morningstar's Mo or Finchat.io offer AI-generated answers to users' financial questions. Grounding yourself in financial terms is a great starting point for becoming a smarter investment.
However, always fact check information you get from AI before you use it in any significant way. It's one thing to toss around a new investing term you learned at a party, another thing to reallocate your portfolio because AI told you to.
Use To Spot Trends, but Not Predict the Future
AI is a pattern-finding and analyzing dynamo, able to process millions of data points and detect trends at amazing speeds that humans might miss. However, picking out trends does not mean it can predict the future. In fact, it's notoriously bad at this, because it turns out that being able to pick a hot stock is a uniquely human trait, borne of things like instinct and experience and history as well as the trends and patterns that AI can find.
This lends itself best to long-term investing strategies versus day-trading hype.
Use for Risk Management
One of the smartest ways to use AI in your investing strategy is for risk management, making sure you're not over-concentrated in one asset, especially a risky one. AI can take a high-level overview of your portfolio and flag potential red flags that you can either solve on your own or seek a professional's help with.
Additionally, you can use AI to track your investments against market conditions to help you resist emotional decision-making — like chasing trends or holding on to underperforming assets too long. It can help you become a more strategic investor.
Avoid AI Investing Mistakes
You can't call your friends a tool — it's an insult — but AI won't be offended, because it is a tool. A helpful tool to fill in when you don't have a finance professional at your fingertips. Don't blindly follow AI stock picks or investing bots. All AI gives incorrect or even made up (hallucinated) information at times.
Think of AI as your investing assistant, one whose work still needs checking. While it won't replace a finance professional, it can assist you in your investing goals.
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