Artificial intelligence (AI) has gained significant traction across various industries, including financial markets, promising increased efficiency and data analyzation. AI has also found a prominent role in our day-to-day lives, being used to enhance search engines capabilities and in AI-enhanced chatbots that deliver answers to questions or requests based on data sets that they are trained on.
With the growing interest in AI, some investors are looking to AI’s evolving technology for investing guidance. Before you use AI tools for investing, it's important to understand its limitations.
Here are some things every investor should consider before investing with the help of AI:
1) AI is not a replacement for researching investments
While AI is a groundbreaking technology, it does not replace the critical step of researching and qualifying an investment. AI chatbots like ChatGPT, OpenAI and Chatsonic are classified as large language models (LLM). This means they process vast amounts of select data sets from the internet and provide a response to your query based on probably word and phrase associations.
LLM AI relies heavily on historical data and may not provide real-time financial and investment analysis or guidance. Understanding past performance can be helpful information but it is never a guarantee of future performance.
Investors should take the time to thoroughly review the company they plan to invest in including the latest information and fundamentals like their business plan, operational information and milestones.
2) AI lacks human intelligence or the experience of registered investment professionals
Everyone has a unique investing journey. Constructing your investment portfolio comprises understanding your financial goals, time horizon and your risk tolerance. AI investing bots lack the emotional intelligence and human intuition to factor these important elements into their recommendations when asked.
Based on how the AI chatbot was coded and the types of data sets it was trained on to source answers, biases could also be present in its responses, favouring a particular approach or recommending only a limited number of investments to inquiring investors. Investors should look to registered financial advisors to receive a comprehensive and personalized assessment, and investment services when needed.
3) Be wary of AI chatbots that direct you to invest on a specific platform
With the growing excitement around the technology, fraudsters promote AI investing bots and apps they say can provide guaranteed or high returns with little to no risk to investors. Be mindful that these types of advertisements are a common red flag of fraud.
One of the best ways to avoid fraud is to confirm that the trading platform you plan to use is registered with the securities regulator in the province or territory you reside. Registration confirms that the individual or firm is properly qualified and comply with investor protection laws.
To check the registration of any individual, firm or trading platform, visit: www.CheckFirst.ca/check-reg.
Advancements in AI has undoubtedly transformed how we obtain, analyze and use information. While AI can provide helpful investment ideas, when it comes to making investment decisions, there is no replacement for the qualified services of registered investment professionals and your thorough research of investments to ensure they align to your goals and risk tolerance.
Treat using AI for investing as a helpful tool but not a substitute for due diligence.
Author: James MacTavish
Senior Advisor, Investor & Industry Education
Alberta Securities Commission