Why Investing in Stocks With AI Makes More Sense Than Ever

A graphic of piles of money that sit in front of a cog, representing the use of AI in investing

 

Investing in AI stocks has become remarkably popular in the financial sector over the last two decades. An estimated 60% of all trades done today involve some level of algorithmic participation, due largely to the relatively low risk and respectable returns they can generate routinely with a quantitative approach. This excitement has drawn in a new generation of investors eager to take advantage of the AI approach. When starting out, many have questions like:

  • What sort of platform options am I looking for?
  • What are the differences between them?
  • What does AI offer over other kinds of investing?
  • What are the drawbacks of AI investing?

AI investment may boast a comparatively low risk compared to other investment types, but understanding the inherent risk—both in the quantitative approach as well as the risks inherent in the platform—are a critical part of beginning your investment journey.

AI Investment Opportunities

The time has never been better to start looking at your AI investing options. Regardless of your level of familiarity with investment practices, the prevalence of AI in the financial sector has led to many opportunities to meet every risk preference you’re looking for.

There are four major types of AI investment platforms available to the modern investor. It is important to note that risks are relative. Even “low risk” platforms are still risky in the wrong market conditions, so investors need to take this into account when considering their options.

 

Type Definition Example Pros Cons
Hedge Fund A pooled fund utilizing high-risk methods to generate the highest possible return. Bridgewater Associates

Renaissance Technologies

Citadel LLC

High returns

Multiple strategy options

Human consultation

Prohibitively high fee structure

High-risk strategy

High potential for loss

Mutual Funds A professionally managed investment fund trading in diversified holdings. Vanguard Short-Term Federal

JP Morgan 

Prime Money Market Fund

Advanced portfolio management

Risk management

High fees

Poor trade execution

Brokerage Firm A middleman facilitating trades between buyers and sellers. TD Ameritrade

Charles Schwab

Fidelity Investment

Fees are limited to actual trades

May offer consulting

Erosion of returns over time
Robo-Trader Online platforms providing algorithmic trading services without human involvement. E-Trade

Betterment

Wealthfront

Cheap buy-in

Relativity low risk

Low returns

Minimal strategy options

No consultation opportunities

 

It’s important to note that these categories have, themselves, subcategories that affect the services they offer. For example, brokerage firms are split between:

  • Full Service: A high-level investment platform in which a seasoned consultant can guide investors through their personal trading strategies.
  • Discount: A mid-to-low level platform in which consultants facilitate trades on behalf of investors without consultation services.

Similarly, mutual funds come in many types, each of which offers services and drawbacks specific to their type. Interested parties should check this information out on their own, but the table above provides a wide-angle view of the general investment options. 

Advantages of AI

However you decide to go about your investment journey, AI, or quantitative, trading has several advantages that are not available otherwise.

  • AI removes emotion from trading decisions, allowing for more calculated risks and steady returns.
  • AI is capable of processing much larger quantities of information than humans can. This means your investment decisions are as well researched as possible.
  • AI is incapable of fatigue, meaning that it can continue trading and monitoring the market when a human is no longer able (off the clock, tired, etc.).
  • AI offers real-time monitoring, allowing you to make much faster decisions than would otherwise be the case.

Best of all, AI offers everyday investors accessibility into a practice that they were previously excluded from. Historically, trading and investing have been a wealthy person’s activity by default, with regular people muscled out by high buy-ins and expensive fees. AI makes this technology much more accessible to the everyday person, meaning that they are, for the first time, able to grow their wealth the same way that the wealthy do.

Investing in AI Stocks: Starting Your Investment Journey 

However you decide to go about investing in AI stocks, it’s important to think of the institutional drawbacks that can compromise your investment. Hedge funds, for example, are prohibitively expensive, requiring wealthy “accredited investors” to put down millions and have an uncommonly high annual income. Robo-traders are a significantly more affordable option but are inherently limited by the vast number of users which prevents them from any significant returns.

Chances are, your best bet consists of a more middle-of-the-road approach. Investment platforms like RIMAR utilize a quantitative approach that embraces the data processing power of complex algorithmic trading in addition to the input and oversight of a seasoned investment strategist. This hybrid take on AI investment is further complemented by a laissez-faire fee structure that eliminates annual fees, meaning we don’t make any money unless you do. Contact us if you want to start discussing your future in investing.

Ryan Gordon

Ryan Gordon

Ryan is a qualified chartered accountant of South Africa. Ryan is an avid sportsman who also enjoys reading and spending time with friends and family in his down time. Ryan joined the RIMAR Capital team in 2019 as a business development manager.

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