ChatGPT can write blog posts, cover letters, social media posts, and sonnets. But is it any good at giving money advice and helping you grow your wealth?
Plenty of people think so. In a recent poll, nearly half (47%) of respondents said they had used ChatGPT for financial advice.
While an AI can regurgitate general financial principles, there are dangers in relying heavily on ChatGPT for financial advice. Here are a few reasons to think twice before trusting your money to a chatbot.
ChatGPT isn’t a licensed advisor
When choosing a human financial advisor, you would do your due diligence, so why would you treat an AI any differently?
ChatGPT is programmed to be a language model, and while it managed to pass the bar exam, it has no credentials as a financial advisor and hasn't been trained in financial data.
The AI can provide some general financial principles to follow, but it can’t beat a human (at least not yet) for reliable financial advice.
AI makes stuff up
ChatGPT and other AIs sometimes “hallucinate” or make up statements that sound correct but aren’t. This trend is well known among multiple AIs and a challenge for engineers and others in the artificial intelligence field.
And while researchers will likely make great strides on this in years to come, you should do your fact-checking with the personal finance advice an AI gives you.
ChatGPT doesn’t know your risk tolerance
Even if ChatGPT could create a stellar asset allocation for your portfolio that would beat every other, that doesn’t guarantee it would help you sleep well at night.
Some of the first questions that flesh-and-blood financial advisors ask you regard your risk tolerance or the level of risk you’re willing to endure for monetary rewards.
Every person’s risk tolerance is different, so it’s critical to consider this when selecting investments — something artificial intelligence currently can’t do.
It's not up to date on current events
ChatGPT’s knowledge base only extends to September 2021; it doesn’t have a firm knowledge of anything more recent.
So if you want info on recent inflation numbers, the 2023 stock market recovery, current housing market conditions, or the (possible) oncoming recession, you’ll have to look elsewhere.
ChatGPT has no track record
Every investment prospectus will tell you that “past performance does not guarantee future results,” but looking at an advisor’s track record to see if they’re worth their salt is comforting and instructive.
Since ChatGPT isn’t an investment advisor, you can’t look at this information to predict how well its recommendations have done, nor can you infer what it’s likely to do in the future.
You’re on your own if it steers you wrong
The Financial Industry Regulatory Authority (FINRA) governs the behavior of financial advisors and can take disciplinary action when they don’t follow the rules.
No such institution takes responsibility for the advice chatbots give, so if ChatGPT steers your finances in the wrong direction, you have no recourse to recover your money.
It can't account for your unique situation
There’s a common saying in this industry: “Personal finance is personal.” A chatbot that’s trained on the entirety of the internet has a vast corpus of knowledge but isn’t designed to give you customized information about your financial situation.
A human advisor factors in how close you are to retirement, your income, liabilities, debt, family obligations, and more. ChatGPT isn’t designed to give reliable advice with that degree of nuance.
It offers generic advice
If you’re looking for general principles or popular investment choices, ChatGPT gives some helpful info. It recommends diversifying your investments, factoring in your time horizon, and establishing an emergency fund.
But beyond that, it won't give you very customized advice. Even if you press it for specifics like stock suggestions, it will only bring up popular ones; it won’t recommend one stock above another.
It doesn't beat index funds consistently
AI has been used in the financial industry in various forms for a while, such as the creation of robo-advisors and fraud-prevention algorithms. However, AI’s stock-picking skills are still spotty.
While ChatGPT can beat some of the top investment advisors in the U.K., the AI-run ETF AIEQ hasn’t fared so well.
This ETF uses artificial intelligence to select investments most likely to increase in value over the next 12 months.
To date, it ties in performance next to an S&P; 500 index fund and lags behind a total stock market ETF. So while AI can be helpful in finance, it's not a crystal ball for your investments.
There are no common sense checks to AI
ChatGPT is an AI language model created to generate human-like conversations, not analyze stock portfolios, teach you to budget, or decrease your tax liability.
As such, it doesn’t check the veracity of its statements against what would make sense to a normal human.
It can be tempting to trust that AI knows more than you do, but given the vast corpus that trained ChatGPT, it’s bound to contain some bugs and false information.
So while humans can check themselves against laws, regulations, or what passes the “sniff test,” an AI can't.
There’s no personal accountability with AI
Part of the value of working with an advisor is having a human to hold you accountable for your decisions and progress.
It’s easy to ask a chatbot how to start investing your money, then scroll Instagram instead of opening a brokerage account. It’s quite another to promise your advisor that you’ll open an account and have to answer to her at your next meeting.
It doesn’t WANT to give you financial advice
Luckily, ChatGPT is forthcoming about the fact it was never designed to give targeted financial advice.
If you ask it to pick stocks for your retirement portfolio, it replies, “As an AI language model, I cannot provide personalized financial advice or specific stock recommendations.”
If you ask for financial advice, ChatGPT tells you to “consult with a qualified financial advisor or professional who can assess your specific situation and provide personalized advice.” So you should probably take it at its word and consult humans for your financial needs.
While there are dozens of uses for ChatGPT, getting financial advice was never meant to be one of them. The AI has some inherent limitations (like hallucinations and its limited body of knowledge) that make it ill-suited to be a substitute for a human financial advisor.
If you’re looking for generic suggestions on how to stop wasting money or improve your finances, ChatGPT is a fine place to start.
But when you’re answering complex questions with high stakes like “Should I pay off all my debt or declare bankruptcy?” or “What should I do with my $1 million inheritance?” you’ll receive the best advice from a human financial advisor.