Artificial Intelligence and the Future of Personal Finance

AI – Artificial intelligence.  It is the new frontier of technology and could revolutionize every industry.  This also includes the world of personal finance.   It’s intriguing, exciting, and downright scary.  Today, we dig in.

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AI is an exciting technology

Artificial intelligence has already left its mark on many industries.  It impacts retail, the auto industry, medicine, and personal finance.  You can easily find articles where AI is predicting the price of a stock.  It is something that will impact our lives every day.  

Should you use AI to make investment decisions?

You don't have to search for long before you find an article where someone has asked AI to predict the price of a company's stock a year from now.  Is this something you should rely on?  

In its current state AI has some significant shortcomings.  There are questions about the accuracy of the data.  There have been several cases where AI fails to get the facts right.  It is, after all, a garbage-in garbage-out system.  If the inputs about a company or a topic aren't reliable the output generated by AI won't be reliable either.  At this point, there are still some questions about the quality of the inputs.

AI also cannot predict the future.  It uses the data available and extrapolates what might happen, but what really happens is still going to be a mystery.  Lastly, AI also cannot anticipate human behavior.  Human behavior often does not follow rational patterns.  Human behavior can be driven by emotions and many irrational factors, and those situations are impossible to predict. 

At this stage, using AI to predict a company's stock price may be a good starting point to do your research.  It can factor many variables and methods to estimate a fair value.  However, the human element will still create challenges for accuracy and reliability.

Is AI helpful or harmful when helping people plan for the future?

In many cases, it can be both. Artificial Intelligence can help point us in good directions to find more reliable information and resources for complicated topics.  Search engines, like Google, already display some type of AI response.  In the right hands, those answers can reduce the time it takes to get needed answers.  

But, the accuracy issues mentioned before can also create risks.  If the information behind the answers is faulty or doesn't consider all of the critical variables it could lead to a bad recommendation. 

Over time, the quality of the information will improve.  It will continue to impact the lives of professionals and consumers in a good way.  For the professionals, they will have to be better and improve their knowledge.  For the consumer, they will have access to better information to make better decisions.

Will people rely to heavily on AI?

People continue to get more comfortable with technology.  At dinner recently, the table of 80-year-olds locked on their cell phones was a bit surprising.  And we all know younger generations have been raised in a technology world.  It is safe to assume, the confidence in things like artificial intelligence will only grow. 

But there is one thing AI will always find challenging:  Human emotions.  It will be hard for a computer or an algorithm to measure how scared an investor is during a bear market or a hurricane.  It is hard to navigate things like confirmation bias or other issues that impact a person's mindset and decision-making. 

Will AI replace financial advisors, lawyers or doctors?

In short, no.  It will change how financial, legal, and medical advice is delivered to consumers, which in our opinion is a good thing.  

Many of the professionals on our team have been around long enough to remember when low-cost brokerage firms like e-Trade posed a threat to our careers.  Now 25 years later, we are still here.  

Computers are great at finding the mathematical answer.  But what they don't account for is the desire for human interaction or the power of human emotion.  The right answer is often somewhere between the optimized number and the client's feelings. People also want to be able to see someone, talk to someone, and be heard by someone.  And that is where professionals shine. 

AI will challenge us to be better at the technical aspects of our jobs.  It will challenge us to be better relating to people.  And these are both good things for you.