Will ChatGPT Impact Finance?

(Shutterstock)

Artificial intelligence (AI) isn’t new, but it is evolving. The latest ChatGPT, or Chat-generated pre-trained transformer, is the newest AI to hit the headlines. Its developers claim it has numerous applications in everyday life.

One such application is finance. Specifically, it could possibly be used for portfolio-allocation suggestions. But what are the strengths and limitations of using ChatGPT with your investments? Will ChatGPT replace financial advisors?

How ChatGPT Works

ChatGPT is a pre-trained generative chat that makes use of natural language processing (NLP). In other words, you ask it a question, and it answers in human-like speech instead of the old robotic way.

ChatGPT’s data sources are textbooks, various articles, and websites. It uses these sources to model its language when responding to human interaction.

Its use ranges from writing code to translating to writing a poem, but it can potentially be used for other tasks. This would include tasks in the finance world.

AI Already Used in Finance

AI isn’t new to the finance world. In 2008, robo-advisors became available to investors. This is a digital platform, and it provides automated, algorithm-driven financial planning and investment services. With robo-advisors, there is little to no human supervision.

Most robo-advisors use modern portfolio theory to build passive, indexed portfolios for their users. And once the portfolios are built, the robo-advisor continually monitors them. They ensure that optimal asset class weighings are maintained.

But robo-advisors are usually only recommended for entry-level investors. Robo-advisors are not typically used for large portfolios. The human touch is needed. But can we say the same about ChatGPT?

ChatGPT’s Depth of Knowledge

It’s prudent to start with the premise that ChatGPT isn’t always accurate. Remember, it sources a lot of its information from the internet, and you don’t always find accurate information on the web.

The current ChatGPT version can only access information as recent as 2021. And the investment world changes daily, let alone from two years ago.

ChatGPT for Investment Research

If you are conducting investment research on ChatGPT, it won’t tell you the best stocks. It’s not capable of giving an opinion, but it can identify the most profitable companies on the stock index.

The ChatGPT can provide you with historical data. It is a whiz at math and can calculate the average return of an investment over a designated period. So, if you want to see how a stock performed over three years, ChatGPT has you covered. But it may not always have access to the information you need.

Asking ChatGPT the Right Questions

The key to using ChatGPT is asking it the right questions. And just because you ask a question, doesn’t mean ChatGPT understands the nuance that comes with that question.

So, if you want to ask it how you should diversify your portfolio, you’re going to receive a generic answer that probably doesn’t pertain to you. Instead, you must give a scenario of who you are and what you want to achieve. Or, if you follow an investment style, ask ChatGPT to create a portfolio that mimics the style of Ken Griffin or Warren Buffet’s Berkshire.

You’ll probably receive a general answer that may be more in line with what you want, but it still won’t be customized to your needs.

Are Financial Advisors Worried?

A financial advisor creates long-term plans for building wealth. They help to manage risk. They break down confusing jargon and explain it to you in everyday language.

Financial advisors offer various services, such as:

• wealth managers
• tax professionals
• financial planners
• investment professionals

A critical aspect of a financial advisor is that they learn their client’s needs, values, and goals. They use this information when developing a plan. Whereas a chatbot will give you a generic answer to a financial question, a living, breathing financial advisor will customize a plan to your needs. Financial planning is personalized.

ChatGPT can take the question you ask and come up with a plan. But that’s only half the story. It can’t ask probing questions about your finances. It doesn’t dig deep. A human will follow up with questions and help guide you to the answers needed. Because ChatGPT can’t go in-depth, it cannot help you set realistic goals.

ChatGPT is a program and, therefore, not accountable. There’s no ability to adjust if something changes. With a human, accountability is available. And if your financial circumstances change, you have someone you can discuss options with so that you can pivot.

ChatGPT Only as Good as Its Dataset

You can use the information available in ChatGPT for historical research, but your research will have to go back to 2021, and it’s information that is found on the internet or various other sources.

If you’re using ChatGPT, it’s important to ask the right questions. Remember, it can’t follow up like a financial advisor can, so your answer won’t be in-depth.

ChatGPT can be used as a tool when developing your portfolio, but it’s probably wise to keep the human touch.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.