How AI Can Help Take the Emotion Out of Investor Decisions
AI-driven recommendations can complement human judgment, leading to more rational choices that aren’t as influenced by biases and blind spots.
Since October 2022, the market has surged to unprecedented heights, with all major indexes hitting record levels. Yet, beneath this ascent, emotions are running high.
Investors are contending with uncertainty, questioning the sustainability of the rally amid looming risks such as Federal Reserve interest rate policy, mounting debt and political uncertainties surrounding the upcoming election.
These uncertainties underscore the necessity for a strategic approach that harnesses the power of artificial intelligence (AI) to not only seize market opportunities but also maneuver through its complexities with agility and foresight. By integrating AI-driven insights into investment strategies, investors can effectively mitigate risks and optimize decision-making, ensuring they remain positioned to capitalize on bullish momentum while safeguarding against potential downturns.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How AI impacts investing and analysis
AI technology offers actionable insights that streamline investment decisions with accuracy and efficiency. By implementing AI into their strategies, individual investors can tap into its transformative potential to effectively navigate today’s dynamic financial landscape.
Human decision-making is susceptible to emotions, biases and informational blind spots, potentially resulting in suboptimal outcomes. By complementing human judgment with AI-driven recommendations, investors can offset these factors and make more sound and rational choices.
AI possesses the capability to foresee future risky situations, such as the COVID-19 drawdown or the bear market of 2022, by analyzing vast information from various sources, from media updates to company earnings reports, and devising strategies to lessen risks for investors. It can identify lucrative and winning trades, such as those of tech giants like Nvidia (NVDA) and other notable tech stocks in the Magnificent 7, aiming to enhance investment performance.
AI can empower individual investors to manage emotions and elevate their investment processes as we scale the market's highs, with its extensive range of capabilities:
- Data-driven decision making. AI has the ability to analyze vast datasets, historical or current, and extract meaningful trends in the market.
- Diversification strategies. AI algorithms are able to identify diverse investment opportunities across various sectors and asset classes.
- Risk management. AI-powered risk assessment tools can pinpoint and mitigate potential risks within your portfolio.
- Emotional discipline. Data-driven insights provided by AI can guide investors’ actions and keep their emotions in check.
Steps individual investors can take to utilize AI
For individual investors steering their stock portfolios through market fluctuations, AI serves as a valuable tool. Traditional investment approaches may falter in volatile, complex markets, but AI offers a compelling solution. Investors can explore the following avenues:
- Seeking advisers who utilize AI solutions in their decision-making processes. Advisers leveraging advanced AI algorithms can offer tailored recommendations and insights aligned with investors' goals and risk tolerance.
- Leveraging information of AI-powered ETFs. These investment vehicles employ this technology to identify market opportunities through AI models trained on historical data and trends. Whether constructing an investment portfolio with AI-powered ETFs or analyzing their latest holdings, investors gain access to the “machine’s view” on the current market dynamics. This perspective can serve as a powerful tool, offering a second opinion to investors' decision-making process.
By adopting these principles and integrating AI into their investment strategies, individual investors can navigate today's market peaks with assurance and clarity. By embracing AI as a strategic ally, investors can transcend human decision-making constraints and take advantage of the opportunities unfolding in today's financial landscape.
The evolution of AI continues to expand its capabilities. As algorithms advance and become more sophisticated, the potential for AI to revolutionize investment management grows. Whether through incorporating AI-driven ETFs into investment portfolios or seeking advisers who leverage AI solutions, individual investors have myriad avenues to harness AI’s power.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Francis Geeseok Oh is responsible for global sales and business development of Qraft's cutting-edge artificial intelligence technologies to financial institutions. He contributes to media such as Bloomberg, WSJ and Financial Times, discussing AI adoption in the asset management industry. Also, he has appeared as a guest speaker at AI lecture classes, including Oxford Said Business School, HKU and HKUST.
-
Stock Market Today: Dow Climbs 288 Points After Amazon, Intel Earnings
Post-earnings strength from Amazon and Intel helped cushion the blow of a disappointing October jobs report.
By David Dittman Published
-
Nvidia Stock Is Joining the Dow. Is It Time to Buy?
Nvidia will replace Intel in the Dow Jones Industrial Average this Friday. What does it mean for the stock?
By Dan Burrows Published
-
How to Sell Your Business With No Regrets
The key to a successful exit: You've got to be prepared. So, start now by maximizing profitability, planning for succession and avoiding the dreaded five D's.
By Nick Guida, Investment Adviser Representative Published
-
The Bare Necessities of Buying Pet Insurance
Pet insurance can help put you at ease over the health of your furry friends. Here's what to look for when shopping around for a policy.
By Joelle Spear, CFP® Published
-
Is It Too Late to Do a Roth Conversion if You're Retired?
The short answer is: Not at all. Roth conversions can be great tax-saving strategies … for the right people. Are you a good candidate?
By Arrin Wray Published
-
Five Options for Retirees Who No Longer Need Life Insurance
If you're retired and you've checked with your financial planner that life insurance is no longer vital, here are five ways you can turn it to your advantage.
By Evan T. Beach, CFP®, AWMA® Published
-
Five Financial Planning Secrets of Millionaires
You might be surprised: Most millionaires don't feel rich. Instead, they have smart goals, discipline and a little help along the way.
By Kevin Dwyer, CFP®, CLU® Published
-
Financial Hangover Got You Down? Rebalance Your Budget
After overindulging on vacations or other fun, here's how to review your budget and set new goals, without sacrificing the experiences that matter most.
By Frank J. Legan Published
-
Here's Why You Shouldn't Put All Your Money Into Roth IRAs
Converting a tax-deferred account to a Roth can be a good strategy for lowering future taxes, but moving all of your money at once is typically not recommended.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Three Advantages of These Underrated Accounts for Retirees
Using taxable accounts for some retirement savings in the 10 years before and after retirement can give you greater flexibility and benefit your heirs.
By Evan T. Beach, CFP®, AWMA® Published