Artificial Intelligence in Investing

8/1/2021

Artificial Intelligence (AI) is a term that is used to describe the concept of machines doing the tasks that are typically only done by people, utilizing decision-making, problem-solving, observation, and many other traits previously only used by people.  This industry has been developing and evolving for over 60 years, with various investment opportunities in the companies that are at the forefront of this industry.  Wealthy investors have also seen the introduction of this technology and approach as an option to develop investment portfolios.  

AI as a concept has been around for much longer than investors and financial advisors have been using AI to aid in investment decision making, so the options for investing in AI related companies has also been available for much longer.  According to research from Spectrem Group, 41 percent of wealthy investors are interested in investing in companies that develop Artificial Intelligence.  That percentage jumps up to 53 percent among those investors who have a net worth between $5MM-$25MM.  Men are slightly more interested in investing in AI than women, with those interested at 44 percent and 35 percent respectively.  The investor segment that is the most interested in investing in Artificial Intelligence are Millennials, with 60 percent interested in investing in AI.

The interest in investing in AI is more specifically investing in companies that are developing devices, software, and other interfaces that can critically think and problem solve.  This interest is something that investors should speak with their financial professional about if they would like to add an investment like this to their portfolio, which would allow their advisor the opportunity to ensure the investment choice is suitable for their risk tolerance and their financial plan.

Another way that Artificial Intelligence has been impacting the financial industry is the utilization of AI in the development of investment portfolios.  Many different financial advisors and firms utilize AI in various ways to develop investment portfolios and financial plans.  Firms will often run simulations to test financial plans and examine investment portfolios.  This utilization of AI may or may not be known to the individual investor, as often this is done behind the scenes of a portfolio or financial plan.  There are other types of AI that are more obvious within investing as well.

Robo-advisors are something that have been around since 2008, and they offer investors access to a platform that utilizes an automated, AI driven investment portfolio.  These platforms can utilize a variety of inputs from the individual investors and have a wide variety of sophistication.  Spectrem Group found through their research that 13 percent of investors have some type of robo-advisor account, and that percentage jumps up to 35 percent of Millennials that have a robo-advisor account.

The question remains if a robo-advisor is just as good, if not better, at certain tasks than a financial advisor.  Nearly a quarter of investors feel that there would be no difference between a financial advisor and a robo-advisor in establishing a financial plan, while just over two-thirds feel the financial advisor would do a better job.  Twenty-nine percent of investors feel that a robo-advisor would be just as good as a financial advisor in picking stocks that would best meet an investor’s risk tolerance. 

Investors considering investment options in AI or utilizing AI for their investment selection should examine their options and ensure they fully understand the options available to them before making any investment decision.