How To Use AI To Invest

While society is still trying to understand artificial intelligence (AI) and its capabilities, investors are looking for ways to use technology as a means to build wealth. 

Top hedge fund managers, high-profile investors, and investment firms are increasingly turning to AI for assistance in high-frequency trading, historical analysis, as well as algorithmic trading. By outsourcing much of the drudgery associated with finding and analyzing vast amounts of data, investors are able to work more efficiently, improving their chances of meeting their goals. 

A neural network application is what makes AI a useful tool for investing and separates it from traditional internet search engines. A neural network is modeled after a human brain's structure and function, giving AI the ability to artificially practice reason and logic and mimic human thought processes. This gives AI the capability to process and analyze vast amounts of complex data more quickly than humans, making it a tool that can be used by hedge fund managers and independent day traders alike.

The Role Of Predictive Analytics In AI Investing

At the crossroads of financial investment and artificial intelligence are AI investing assistants. An AI assistant does not mean an investor logs in and AI takes it from there. 

Instead, AI algorithms can be trained to identify patterns and trends in the financial market and provide recommendations for portfolio additions or subtractions. This task is accomplished through predictive analytics — using historical data and market conditions to identify trends and patterns to predict future market moves. AI can detect trends and patterns that may not be recognized by the human eye.

AI uses natural language processing (NLP) to analyze human language and information on the internet, including news articles, social media posts, financial statements, and market reports to determine the sentiment surrounding a specific stock or asset class. A combination of NLP and predictive analytics can help forecast future market movements and help investors make better financial decisions based on a larger, more comprehensive network of information. 

How AI Can Act As A Guardrail Against Human Bias

Investors can craft an investment strategy that will allow AI to advise them. This could include creating a personalized diversification strategy and risk threshold that the assistant will monitor, as well as inform the user if they’re straying from their established goals. This feature can protect investors from their own biases. 

As AI is not susceptible to human cognitive biases and loss aversion, the assistant can act as a guardrail, presenting the investor with information based on data and market analysis that potentially leads to better returns, reduced losses, and a balanced portfolio. 

Independent investors often lack information and financial literacy about the market. Incorporating AI into investing bridges the educational gap between top hedge fund managers and neophytes. Using an AI assistant allows prospective investors or those who wish to gain a broader knowledge of the marketplace to ask questions and learn, giving them a broader knowledge base before investing. Rather than speaking to a financial adviser who charges a fee for their time, an AI assistant is available 24/7 and without paying commissions. 

Questions such as, “What is the historical performance of residential property investment during periods of economic downturn or stagnation?” can receive a comprehensive answer using AI’s knowledge of historical data to help the investor gain a better judgment before assuming risk. 

Current Adoption Rates And Future Trends In AI Investing

Recent polling data from Magnifi, a leader in the AI investment assistant frontier, found 41% of Americans said they would use guidance from sophisticated AI to invest. 

However, a 2022 Lending Tree poll found only 1% of people with investments use robo advisers. As wealth-building vehicles like fractional investing continue to grow, granting access for individual investors into once-exclusive asset classes — such as multifamily real estate — investors will likely begin using AI more frequently moving forward. 

While the possibility of incorporating this newly available technology into portfolio management is exciting, it’s important to view it with a healthy amount of skepticism. AI chatbots are still in their early stages of public use and development so there is still a lot of learning to achieve. Artificial intelligence is not yet conscious and sentient — it has not reached the point of independent thought or learning and is only as smart as the information it is given. Some investors may be perceived as objective when it could be subjectively human-drawn conclusions and assumptions. 

AI assistant chatbots’ knowledge base will improve with time, but in the meantime, it is important for investors to use it as a reference point that assists in the decision-making process. Prospective investors using this tool should still fact-check the information they’re given before assuming financial risk. 

Practicing Skepticism And Using AI As A Tool

For now, a minority of independent investors are using AI, but it would be wise for others to familiarize themselves with it to get a leg up on the competition.

Stay up to date on the integration of AI in financial investment through Benzinga.