Artificial intelligence: the new frontier of investing

In recent years, the rapid advancements in artificial intelligence (AI) have permeated various industries, revolutionizing the way we live and work. One area where AI is making substantial strides is in the world of investing.

With its ability to analyse vast datasets, identify patterns, and make data-driven predictions, AI is poised to transform investment strategies with the potential to elevate the performance of investors worldwide. This article explores the ways in which AI is reshaping the landscape of investing and the potential benefits it brings.

For decades, investment professionals have relied on fundamental analysis, market trends, and historical data to make informed decisions. However, AI has unlocked the vast potential of big data, allowing investors to gain insights from a wealth of information previously beyond human comprehension.

Machine learning algorithms can now analyse colossal datasets, identifying correlations, hidden patterns, and even sentiment analysis derived from social media, news articles, and other unstructured data sources.

This newfound ability to process and interpret massive amounts of data empowers investors to make more informed and timely investment decisions. From robo-advisors to algorithmic trading, AI is enabling investors to make smarter, faster, cheaper and easier decisions. Here are some of the ways AI is improving investing.

• AI can help investors find new opportunities. By analyzing vast amounts of data from various sources, such as market trends, news, social media, company reports and customer feedback, AI can identify patterns, anomalies and signals that may indicate potential investment opportunities. For example, Q.ai, an AI-powered platform, leverages machine learning to automatically adapt to market conditions and generate optimal investment strategies for its users.
• AI can help investors remove bias from decision-making. Human investors are prone to cognitive biases, such as overconfidence, confirmation bias and loss aversion, that can impair their judgment and performance. AI can help investors overcome these biases by providing objective and data-driven insights and recommendations. For example, IBM Watson, an AI system, can analyze the personality traits and emotions of investors and provide personalized feedback and guidance.
• AI can help investors tailor financial advice to individuals. AI can help investors customize their portfolios and goals according to their risk appetite, time horizon, preferences and values. AI can also help investors monitor their progress and adjust their plans as needed. For example, Wealthfront, a robo-advisor, uses AI to provide automated financial planning and advice to its clients based on their financial situation and goals.
• AI can help investors speed up the execution and analysis of trades. AI can help investors execute trades faster and more efficiently by using algorithms that can process large volumes of orders in milliseconds and optimize the timing, price and quantity of trades. AI can also help investors analyze the performance and risk of their trades by using advanced techniques such as natural language processing and sentiment analysis. For example, Sentient Investment Management, a hedge fund, uses AI to trade across multiple asset classes and markets using evolutionary algorithms.

AI is revolutionizing the field of investing by providing new tools and capabilities that can enhance the efficiency, accuracy and profitability of investors. However, AI also poses some challenges and risks, such as ethical issues, regulatory uncertainty and cyberattacks. Therefore, investors should be aware of the limitations and implications of AI and use it with caution and responsibility.

The value and income from a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.”

The views expressed in this document should not be taken as a recommendation, advice or forecast.

Please note that this article was written by Bing Chat AI and ChatGPT, artificial intelligence chatbots, and reviewed by M&G Investments’ editorial and compliance teams.