Artificial Intelligence is proving to be the defining technology of the present decade. Think of the many ways it’s being applied: in design and content creation, medical diagnoses and health management, as well as recommendations for leisurely activity. You could even learn how to use AI to make investment decisions.
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That last point—investing with help from AI systems –is becoming increasingly popular. However, unless you know how to work with AI tools in this area, outcomes from this approach may be underwhelming. If you know what AI can (and can’t) do for you with respect to investing, you’ll likely score significant wins with it.
This article takes you through a number of ways that AI could be beneficial to your investing journey. Read on to find out what they are:
Portfolio Management
Many of the well-known AI platforms can provide suggestions for building an investment portfolio based on a number of criteria (age, income, risk appetite, location, etc.). They may even supply ideas for rebalancing your portfolio when this becomes necessary. More advanced and specialised AI tools are able to determine optimal portfolio compositions based on historical data, asset correlation, and market volatility.
Personalised Investment Advice
AI platforms are fashioned through huge masses of data, and primed to deliver output based on defined modelling. If you fed a sufficiently effective AI system with relevant information (e.g. income, career level, cash flow, spending habits, etc.) about you, you might receive investment advice tailored to you. You could even prompt systems so that they modify advice based on changes in your financial situation and general economic conditions.
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Stock Picks
If you’re looking to invest in the stock market (whether local or international), AI could come in handy for picking stocks. We aren’t saying to ask ChatGPT or Gemini to suggest stocks you should buy (that may be a bad idea). Instead, you could upload the financial statements or earnings calls of listed companies to these platforms and request a summary. Or you may ask for a review of price action over a given period to detect historical patterns that may repeat. This sort of information may then inform your investing decisions.
Backtesting
Backtesting involves running the historical data of markets to determine future performance. But AI systems can do more than this. Leveraging other relevant data, they could detect changes in market dynamics or an evolution in the way a stock’s price changes over time. This kind of insight is particularly useful to shorter-term investors, whose trades are based more on technical analysis than on asset fundamentals.
Investor Sentiment
If you are knowledgeable about investing, you’ll know that a lot of it depends on prevailing market sentiment. The more positively people feel about an asset class (e.g. real estate), the more of it they will demand. As they demand more of the asset, its price will rise. Smart investors basically try to buy when market sentiment is less positive than it should be, and sell when everyone else is overenthusiastic about it.
AI systems detect the prevailing sentiment in the market for an asset by analysing publications referring to the asset type and general internet chatter around it. This type of summary is sometimes provided on market tracking platforms. But you could prompt a sufficiently advanced AI to generate a more detailed report on market sentiment than what these platforms share.
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Final Words
This article has shown you how to use AI to make investment decisions. We don’t endorse handing all your decision-making to AI. That would be a mistake, as the results you’ll obtain from this will likely be disappointing. But utilising AI as a great aid, while still making the final decisions yourself, is the better path to take.
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