Artificial intelligence (AI) like ChatGPT is showing up in more areas of finance than ever before, but it does not appear to be up to the task of picking stocks that will go gangbusters. In truth, only insider trading or psychic knowledge could do that, but AI isn’t even as good as humans at the job yet.
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The language model (LLM)-based AI algorithms of ChatGPT and similar don’t have the human capacity for nuance and observation that are involved in stock trading. That said, ChatGPT can still help make you richer. Here are some considerations on how to use it.
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ChatGPT Can Act Like a Broker … Sort Of
Michael Martin, vice president of market strategy at TradingBlock.com, said that while generative AI “can be a fantastic tool for supporting an investor’s hypotheses … AI is not truly symbiotic; it pulls its intelligence from human-published knowledge.”
While ChatGPT should never replace using an actual stockbroker, it can supplement the tools that brokers provide, Martin explained, making the process of stock analysis faster and more efficient. Other ways it can do this include:
Comparing your entire portfolio to “as many different benchmarks as you can fathom.”
Running quick “what-if” scenarios, like stress-testing your portfolio against historical market crashes or sudden rate hikes.
Summarizing complex news fast so you don’t get buried in headlines but still catch major events that could impact your holdings.
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To Track Investing Goals
Martin also finds ChatGPT useful to check if he’s on track with his investing goals, and whether he should put more or less into his equity, bond or even crypto portfolios. “I’m constantly plugging in new rate scenarios, updated yearly return estimates, and different allocation mixes to see how small shifts might play out over time,” he said.
To Check Assumptions
Though he never uses ChatGPT for stock recommendations, Martin said, “I treat it like my portable CFP to stress test my assumptions, catch blind spots I might miss on my own, and fine-tune my portfolio when it makes sense.”
To Help With Retirement Planning
ChatGPT is also a useful tool when it comes to budget planning and retirement planning, Martin shared. He gave an example prompt and ChatGPT’s answer:
Prompt:
I have $100,000 saved for retirement today. I’m 40. My portfolio is 70% U.S. stocks (Vanguard Total Stock Market ETF — VTI) and 30% international (Vanguard Total International Stock ETF — VXUS). I add $23,000 a year to my retirement account. I’ll also get about 80% of the maximum Social Security benefit. At what point can I retire if I’ll need $100,000 a year in retirement?
ChatGPT’s answer:
Assuming a 7% average annual return, at age 62 you’d have about $975,000. At 65, you’d have around $1.3 million. At 67, you’d have about $1.55 million.
80% of max Social Security today is roughly $32,000 a year. So you’d need about $68,000 a year from your portfolio to reach $100,000 total income.
Using the 4% rule, a $1.7 million nest egg would cover that safely ($68,000 ÷ 0.04). So at 7% growth and your contributions, you’d likely hit that target around age 68.
So with these assumptions, you’d be in good shape to retire comfortably around 68.
Pretty comprehensive!
Use It With Awareness
ChatGPT is great so long as you remember to use it as a supplemental tool, not a substitute for real financial advice, Martin said. “It can help you run numbers, test ideas and catch things you might overlook, but it can’t know your full situation or replace the judgment of a qualified advisor who understands tax rules, estate planning or your personal goals.”
As a ‘Second Opinion’
AI can also be valuable to investors as “a great second opinion tool,” according to Dr. Stephan Shipe, Ph.D., CFP, certifed financial analyst (CFA) and founder of Scholar Financial Advising.
“You can use it to understand financial terminology, summarize tradeoffs or organize questions for your advisor,” he said. Clarity of that kind can help build confidence, which can allow the average investor to take a more active role in their own financial plan.
Generalized Advice
It’s important to remember that AI can only give you generalized advice, Shipe said. “The biggest risk is thinking AI knows your full situation,” Shipe warned. It can’t assess your tax situation, your spouse’s benefits “or how you emotionally react to market volatility.” Taking bad advice from ChatGPT could be catastrophic.
Shipe always tells clients, “[G]etting a bad dinner recommendation from ChatGPT is annoying. But getting bad financial advice can be life-altering. The stakes are just too high to blindly follow it.”
It’s great to use ChatGPT for budgeting, goal-setting or exploring concepts like Roth conversions or asset allocation, Shipe said, so long as you “treat it like a tool, not the whole toolbox, and not a replacement for human advice.”
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This article originally appeared on GOBankingRates.com: These Experts Say ChatGPT Can’t Beat the Stock Market — But It Can Still Make You Richer
