The landscape of retail investing is undergoing a significant transformation, driven by the integration of artificial intelligence (AI) into financial advisory services. As AI tools like ChatGPT approach their third anniversary, approximately one in ten retail investors are turning to chatbots for stock selection, contributing to a substantial rise in the robo-advisory market. This sector, encompassing automated financial advice from fintech firms, banks, and wealth managers, is projected to grow from $61.75 billion in 2024 to $470.91 billion by 2029, marking a nearly 600% increase.
The allure of AI in investing lies in its ability to democratize access to sophisticated financial analysis. Retail investors can now select stocks, monitor portfolios, and obtain investment insights that were once the domain of institutional investors. Surveys indicate that 50% of investors globally express a willingness to use AI tools like ChatGPT for portfolio decisions, with 13% already incorporating these tools into their investment strategies.
However, experts caution against overreliance on AI for investment decisions. While AI can process vast amounts of data and identify patterns, it lacks access to proprietary information behind paywalls and may misquote or overly rely on historical data, posing risks to investors.
A notable example is a basket of 38 stocks selected by ChatGPT in 2023, which outperformed average UK funds by nearly 19 percentage points. Nevertheless, users must exercise caution, provide well-structured prompts, and remember that AI lacks human oversight essential for risk management during market downturns.
The rapid growth of the robo-advisory market underscores the increasing role of AI in personal finance. While AI offers promising tools for investment analysis, it is crucial for investors to approach these technologies with a critical eye and a comprehensive understanding of their limitations. Incorporating AI into investment strategies should complement, not replace, traditional financial advice and due diligence.
