“Alexa, buy a stock that has the best chance of going up between 1% and 3% today.” Could the complexity of financial research ever become this simple? The answer is yes. New developments in artificial intelligence (AI) and machine learning (ML) are disrupting the underwriting process, portfolio composition, robo-advising, research and virtually every corner of fintech.
Someday, you’ll have reliable AI that can analyze your specific investing style, alert you as to where opportunities lay hidden and offer you hard-hitting analyses to stay informed. This is vital because sound financial systems underpin economic growth and development, and they’re the engine behind the civilized world in advancing shared prosperity and reducing class inequality.
And making investing accessible is critical. Class division is more severely disproportionate in the ownership of financial assets than in the distribution of income. The top 1% of wealthy Americans control about 38% of the stock market, and the top 10% have 84% of all of Wall Street portfolios’ value, according to the results of the Federal Reserve’s 2019 Survey of Consumer Finances.
With basic calculations, let’s assume those who have exposure to the stock market averaged a 16% gain last year in the S&P 500. This would mean these American families increased their portfolios by $4 trillion last year. But $3.36 trillion (84% of the total) would have gone to just 10% of the families.
Regardless of where you stand on your personal views, we can all agree the global economy is in a perilous situation. At the root of the issue is that the “old economy” doesn’t work for everyone.
The last economic revolution was driven by manufacturing and information technology, but the next one will be driven by emerging technologies like autonomous vehicles, gene editing and blockchain. And none stands out more than AI.
But can AI be the catalyst to accelerate economic equality in society? We think so. At Portfolio Insider, we’ve defined these three emerging ways AI can democratize access to investing:
First, it can make investing “human.” This is done by leveraging natural language processing (NLP). Now, imagine this: In order to drive your car, you must know how all the parts work with each other. If you didn’t know the “system,” you’d have to drive with a personal mechanic to advise you. That’s an analogy of how intimidating it is for retail investors to understand the vast lexicons of archaic terms to just begin the process of investing.
This is where NLP can solve for finance. Complicated tasks, which used to require decades of deep domain knowledge, could become as simple as asking a friend what their favorite running shoes are. Instead of spending years learning how to read financial statements, you could simply ask questions such as “Is Adobe making money?”, “What’s the risk?” and “Is it a good time to buy?” Then, NLP-powered AI would explain the numbers in plain English.
By making investing human, we’ll eliminate the high barriers of capital markets. With more people who understand the stock market, more communities can form to liberate centuries of economic misunderstanding.
Second, it can make investing fast. The Senate recently passed a roughly $1 trillion infrastructure bill. Surely, it will have big implications on the stock market. However, it was 2,701 pages or roughly 75 hours for an average person to read. Most Americans hardly have time to read all the pages to make decisions for stock trades.
That’s where AI comes in. It can summarize the document with key insights and metrics in seconds. And it can also track sentiments throughout the document and tell you which items are getting positive or negative reactions. What’s more, you’ll be able to digest all important documents for a stock, such as 10-K and 10-Q, from a brief memo that’s written in easy-to-understand language.
Third, it can make investing convenient. Current execution tools and data analytics aren’t intuitive. You need to learn how to use them. Instead, it should be as simple as asking voice assistants to purchase a tech stock that’s likely to go up a few percent with low risk. Or list off which tech stocks are good picks for the day.
Investing should not be an overwhelmingly difficult task. AI can help filter out the noise and make insightful recommendations based on assessments of a portfolio’s composition and historical success.
With its vast potential, AI will make investing more accessible for everybody. It can eliminate outdated jargon, summarize multiple topics into simple, easy-to-read pieces and recommend what stocks to buy. These advancements pave the path for equality of access to capital markets and offer a chance for investors without teams of support to compete in a fair playing field.