Investment is becoming more accessible. According to recent GBR data, around 51% of UK adults have invested as of 2024, which is a whole 9% higher than in early 2023. 23% of those Brits are invested in the stock market, which is particularly intriguing, seeing as the stock market is notoriously difficult to learn. 

As a financial advisor in Bristol, we help a lot of clients organise and build their investment portfolios, ensuring that every step forward is tailored to their goals, risk tolerance, and finances. But developers have attempted to make investing accessible (in one sense) through AI with the intention of making the process quicker, easier, and cheaper. 

But these machines are not the magical investment solution that people make them out to be. Below, we’re going to discuss this process in more detail, and offer reasons as to why AI-powered trading bots can never replace the power of sound, independent financial advice.

An Introduction to Investing

Before we do that, however, why should you care about investing in the first place? If you’re a newcomer who has never placed so much as a penny into the market, investing could be your answer to protecting value amid the cost-of-living crisis, while also helping you to build long-term wealth with smart investment solutions.

Essentially, as an investor, you are setting aside your finances and putting them to work. Instead of allowing them to sit idly in a bank, you’re purchasing something that – you believe – will increase in value and leave you in a more solid financial position. 

That’s not to say it’s all guaranteed, of course. There needs to be due consideration to the sort of investments you make – with different types of investment including growth investing, value investing, momentum investing, and pound-cost averaging – and how you are planning to trade it. In terms of trading, different strategies include day trading, swing trading, scalping, holding, arbitrage trading, and more. 

To help you through all of this, it’s important to build upon your knowledge and – in our opinion – work with a financial advisor who can make calculated, educated moves to protect your wealth and build your future.

An Introduction to AI-Powered Trading Bots

Over the last few years, there has been a definitive buzz surrounding AI, especially in the stock market, where machine learning and deep learning tech are being used to practically automate the trading process. These are software programmes that collect vast amounts of market data, analyse it, identify patterns, and then carry out trades to take advantage of market movements. 

To give an example, let’s say the AI is analysing YUMC stock – which is one of the most invested in companies as of February 2024 – and it has identified correlations between past market events and price movements. The bot can then predict whether the price of YUMC will rise and buy it automatically according to its predictions. In the same way, if you already own YUMC stock and the AI has foreseen a dip in price, then the asset will automatically be sold. 

It’s important to distinguish between this AI and the AI that has been used by investment banks since the 1980s. While investors have been able to use AI to guide their portfolio – utilising the technology to study financial data and help them make decisions – we’re talking about generative AI that can absorb a huge amount of data and then independently formulate its own calculated decisions.

This goes even beyond specific trading-bots, too. Just last year, it was revealed that 8% of UK adults were utilising ChatGPT for investment advice, while nearly 20% were planning to do so.

The Negatives of AI-Driven Investment

In the same survey – which covered 2,000 UK residents – a larger 35% said that they would not consider using AI to help them make monetary decisions. This is an important statistic because while the technology behind AI is impressive, it is not without its faults. In fact, using AI to automate investment can have pretty dire consequences.

  • You Are Relying on Code

For starters, relying on AI means that you are relying on code to make substantial decisions. Code is not infallible. While some potential investors might like the idea of AI because they’re putting their faith in technology – rather than more obviously fallible humans – an AI-trading bot has originally been fed data by human programmers. What if this data was bad, inaccurate, or biased? What if it gets confused and starts having hallucinations? If this is the case, the bots’ decisions will only get worse over time, and your money will steadily be lost.

  • Bots are Susceptible to Hacking

Technology is also susceptible to hacks. Whether it’s to steal funds or simply disrupt the service being provided, cybercriminals can abuse AI-trading bots and deliberately feed them the wrong information. Nothing online is secure, but as more and more investment goes into AI bots, they will become particularly valuable targets for hackers in the near future. 

  • You Are Depending on Certain Market Conditions

Once again, using AI as an investment tool means that all the errors or poor judgement of its developers are being reflected in the work it does for you. Along with this, the rules and strategies that it has been trained to follow are locked in. If the market were to change drastically, or external, perhaps political events cause unforeseen swings in prices, then AI-trading bots struggle to cope. Because they were designed around specific market sentiments, volatility can lead bots to execute trades that are incompatible with the current market, leading to financial losses. 

  • Bots Do Not Have a Human Edge

With this in mind, it is a particularly damaging factor that AI-trading bots do not have a human edge. While they might be able to carry out predefined trading strategies, they cannot foresee shifts in mentality, or understand the consequence of certain news events and social sentiments. This human edge can be crucial when it comes to protecting your wealth and making the right decisions. 

  • You’re Trapped in the Past

Carrying on from this, AI has the tendency to over-optimise its strategies. Historical data can be very useful in the investment landscape, but that same landscape is constantly changing. While certain strategies may have performed well in the past, many fail to adapt to changing markets, and the human touch is undeniably needed to separate a technically good idea from a contextually good one. 

The Benefits of Sound Financial Advice

What’s the answer to this? In our opinion, it’s very simple. AI is still a blossoming technology that is in its infancy. Even in the future, humans will always be needed to manage such complex financial situations. The reason a financial advisor is beneficial now will still be the case years down the line.

  • A Financial Advisor Understands Your Goals

For one, a financial advisor understands your goals. If you’re jumping into the investment world, there is probably a good reason for it. You have goals that you want to meet, and you want to come up with a significant plan to get there. You also have a certain risk tolerance, ambition, and personal objectives that need to be catered for. To an AI bot, however, you are not an individual. There are no emotions involved, and an AI bot will not care if it loses you money or makes the wrong decisions. 

  • You Can Talk and Understand Things 

With this in mind, you can’t communicate with an AI bot. Not really. Yes, you can serve directives, but you cannot sit down and talk through your financial plan on a personal level. With a financial advisor, you have the opportunity to form a partnership with someone who knows about the intricacies of finance and can set you on the best path forward. When it comes to investment, you can also learn about the market, understand the truths and the myths of investing, and comprehend why certain strategies will work. 

  • Financial Advice is Adaptable

A financial advisor is also adaptable. As we mentioned before, AI is developed through code, which means it can only ever feed off what it’s been given. Whenever there are big market shifts or unforeseen events, AI will not be able to think on the fly and make the best, contextually relevant decisions, while a financial advisor can. 

  • Context is Important 

As well as this, an AI-trading bot has been designed to do just that. Trade. With a financial advisor, you can cover all areas of your finances, from your retirement plans, savings, taxes, insurance, and more. This context will be very important when it comes to formulating investment strategies. Once again, this is the benefit of working with a human financial advisor who knows you

  • You Have Peace of Mind

Lastly, we think that the majority of people opting with AI to make investment decisions are doing so because it gives them peace of mind. The investment landscape is complex, after all, and with so many strategies to choose from, it can be easy to doubt yourself and feel stressed over the many consequential decisions you will have to make. 

But while AI is supposed to offer you peace of mind, a financial advisor actually provides it. By using market-leading technology and superb expertise, a financial advisor can offer and implement the best financial decisions possible, taking the stress entirely out of your investment journey. While it’s meant to be a stress-killer, entrusting your money with an AI-trading bot is really a stress-inducer. A financial advisor, on the other hand, will always strive to ensure financial well-being, and will do so without any hallucinations!

Risk Warning: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.