Using artificial intelligence (AI) for investment decisions consists of using pattern-based machine learning that crafts strategies based on years of market data. This has become a remarkably popular investment tool, particularly for new investors who are unfamiliar with the nuances of a detailed investment strategy.
Accessibility, however, is not the only benefit that AI provides investors. This article serves as an initial primer for new investors, detailing:
- What AI is
- How it works in the world of investing
- Several advantages of utilizing AI for investment decisions.
Finally, it provides a couple of suggestions for investors looking to get their feet wet.
What is AI? How Does it Work for Investing?
For the uninitiated, AI investing is what happens when quantitative scientists (also known as quants) effectively feed a learning machine years of market data which it uses to create investment strategies and algorithms, or a set of rules to follow, based on recognizable patterns in that data.
Although AI has existed in various forms since the 1970s, the last decade specifically has seen its increased use in the world of financial investing. Because of the advantages it offers both new and experienced investors, a quantitative approach has been adopted by various investing platforms, including:
- Hedge funds
As of 2022, AI has been involved in nearly 80% of all trades conducted in the modern market. Therefore it’s important for investors to understand the various advantages that an AI approach provides them.
The Advantages of a Quantitative Approach
The primary reason many investors switch to a quantitative approach is the increased accessibility that algorithmic or AI investing provides. Whereas investing used to be a very exclusive club reserved only for the rich and powerful who could afford financial advisors and pricey hedge funds, modern AI investing provides even those of average incomes with the opportunity to grow their wealth.
Although specific advantages vary depending on your choice of platform, a few general benefits provided by just about any AI on the market include:
- Superior Market Analysis: Whereas human investors can only absorb so much market data at a time, AIs can rapidly analyze much larger amounts of data. Furthermore, AIs have the ability to call upon this data at will, whereas human investors are prone to forgetting.
- Limitless Endurance: Humans need to eat, sleep, take a break, etc. An AI program, however, has no such need. This means that a good quantitative engine can keep an eye on things and even alert you if your investments start to go south.
- Automated Portfolio Management: In addition to looking at the prospect of individual investments, AIs can also keep a close eye on your existing investments, ensuring a diverse portfolio that is set to mitigate risk, minimize loss, and maximize potential profit.
Although AIs offer significant advantages over traditional investment approaches, it’s also essential to understand the drawbacks involved. The following section catalogs two common disadvantages associated with using AI for investment decisions and offers a few suggestions to get around them depending on what type of investor you are.
Disadvantages of AI Investing
It’s important to make it clear that, as a whole, we believe the advantages of AI investing heavily outweigh the disadvantages. That being said, we also think that it’s crucial for investors to understand the risks associated with any investment before getting started.
Regardless of your choice and platform, AI investing carries a few critical drawbacks that we think it’s important to recognize, including:
- Limited Investor Knowledge: Although an AI can tell when the market is right for investment, it cannot tell when you are. Many robo-advisors claim to offer personalized services by which they tailor their investment strategies, but these often take the form of limited surveys that cannot possibly understand your nuanced financial situation.
- Reliance on Existing Data: The creation of algorithms and investment strategies generated by AI systems rely on the existing market data fed to it by quantitative scientists. This means that, in the unlikely event of a new market phenomenon, an algorithmic approach may initially struggle with the proper action to take.
It is interesting to think about the fact that robo-advisors often appeal to new investors despite often having limited investment strategies and investor knowledge. In essence, your choice of investment platform really boils down to what kind of an investor you are. More experienced investors may opt for a more hands-on approach which doesn’t fit with a robo-advisor approach. By contrast, many new advisors simply looking to make a small return with minimal effort will find the robo-advisor appeal far more satisfactory.
So Should You Use AI for Investment Decisions?
As a general analysis, using AI for investment decisions has proven to be quite profitable and reliable regardless of your choice of approach. According to our studies, even low-level investment platforms like robo-advisors consistently outperform traditional marketing investing approaches by 20 to 30%. That said, investors need to be aware of the risks and drawbacks of using AI for investment decisions before getting started, which often means consulting with an experienced partner.
Although these financial advisors can be hired independently, it’s ideal to have these consulting services included in-house. For that, you would want to look for hybrid investing firms such as RIMAR, which combines the best of AI investing technology with in-person financial consultation from the most experienced advisors available on the market. Best of all, we are available for as little as $1,000 on your initial investment, beating out high-priced mutual funds and hedge funds while still offering the benefits and services they provide.
Getting Started With RIMAR
RIMAR Capital makes artificial intelligence-based investing broadly accessible to everyday investors who don’t fit the profile of a typical hedge fund client. With RIMAR, investors have the choice of several different trading strategies, all of which are backed by some of the industry’s leading experts. What’s more, RIMAR investors don’t need millions in assets to invest, nor are they subject to a battery of fees and prohibitions on when and how they can access their own money. So if you’re ready to pick up returns that are only possible with data-driven mastery of the market, RIMAR Capital is right up your alley.
Contact us today to learn more about using AI for investment decisions and to see how RIMAR Capital can help grow your portfolio’s value with hedge fund-like returns earned using its AI-driven investing strategies and skilled quantitative trading staff.