New Investors: How to Use AI Effectively for Investing

AI stocks are exciting, but using AI for your regular investment research can be even more exciting, expanding your reach beyond one area.

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We’ve been talking a lot here at Motley Fool about investing in artificial intelligence (AI). But while investing in AI stocks can be exciting, there’s another way to get into stocks through using AI. That’s by using things like ChatGPT to look into stocks and opportunities themselves.

Let me be clear, however. I’m not suggesting that AI is going to provide you with stock choices. In fact, you’ll quickly learn that this won’t provide you with any real answers. However, it can certainly help you discover quite a few other things. Let’s go into how you can use AI for investing and bring your strategy to the next level.

Get into AI platforms

While you can’t use AI to get stock picks, you can certainly use companies that offer this. There are several platforms out there that use AI for investment opportunities. These are AI-powered robo-advisors that create algorithms and use AI techniques to help inform their investment strategies.

A great option for newer investors is to research a few options, find a lower cost method, and then set up an automated investment plan. These platforms can therefore be an excellent way to create and manage a diversified portfolio, without doing so much of the heavy lifting.

What’s more, you can also tailor your investment strategy based on your individual risk profile, your financial goals, and how much you can afford in the first place! So this is a great way to get started using AI for investing.

Analysis

Probably the best way that investors can use AI is by identifying ways in which AI can analyze information. Of course, this would include data analysis. AI can process and analyze data incredibly fast. You can then ask AI to identify any patterns, trends or other correlations that might not be able to be seen right away.

What’s more, AI can use that data to make predictions about what could happen next. Again, this isn’t to say, “Hey, you should buy this stock!” It’s about forecasting market conditions to identify both potential investment opportunities, as well as when there might be falls.

Using that data, AI can analyze news articles, social media posts, earnings reports, and other online content to see what the market thinks about information as it comes out. Again, this can help you identify trends in the market.

Perfecting your portfolio

Another way you can use AI is to help identify any holes in your portfolio. First, you can ask AI to come up with an ideal portfolio based on your risk type. If you’re high, medium, or low risk, it can identify the kind of asset mix that would be ideal for you also based on your goals.

You can then input the amount of cash you can afford to put aside every month towards your investments. Then let AI figure out how much you’ll need to assign to each type of asset and for how long, as well as when you’ll need to rebalance. AI can also provide you with a potential outlook for what your investments will look like over the years.

Put it to work

A great way to get started is by simply picking up a diversified exchange-traded fund (ETF) that aligns with your goals. AI can then dig into it to see how it may perform over the next decade. For instance, consider the ETF iShares S&P/TSX 60 Index ETF (TSX:XIU) that follows the S&P/TSX top 60 stocks.

During 2000 to 2020, AI was able to tell me about how XIU performed during that time. There were several periods of volatility, which included the dot-com bubble, global financial crisis, and other challenges. However, overall, investors enjoyed positive returns long term. In fact, AI identified that investors would have made $10,521.20 by investing just $5,000 in 2000 for an annualized return of 3.5%!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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