Artificial Intelligence: The Future of Investment

By Samuel Leach, the founder of Samuel and Co Trading.

When entering the world of investment, there are many factors to be considered, from regulating and weighing up risk, managing assets and liabilities, and one of the more complicated decisions of deciding where you should invest. On top of this, there is the management of your portfolio. Some tools make this process easier, including brokerages from who you can take advice, but even with these tools, it is still a person behind a screen making the decisions. Imagine if this was simpler though, if there was another brain weighing the risks, deciding whether to put forward an investment and managing your portfolio. Take a step into the finance industry’s future with two words we have all become familiar with: Artificial Intelligence.

Investment and Portfolio Management

Getting your head around all the different types of trading can be challenging. Even the difference between trading and investment can be a task to twist your mind around. Once you have managed to get the basics down pat, it is time to set your sights on portfolio management.

Portfolio management encompasses accumulating and then overseeing a collective of trades and investments. The art of this process is to ensure that this group of investments meets the individual’s long-term financial objectives. To reach these financial objectives factors are compounded within portfolio management to ensure success.

It’s accepted that there are two methods of portfolio management. Active and passive. Active management includes the investor building a strategy and calculating the sale and purchase of stocks so the trader or investor can compete with the existing market. Passive management, however, aims to match the market by following the trend via reproducing indexes.

I can imagine many investors would envy a situation where they can achieve the ease of passive portfolio management but with the capability of beating the market and reaping the rewards. There may be a solution in artificial intelligence, something utilised to a degree in the trading space.

How can AI Assist Investment?

As defined by IBM, “Artificial intelligence leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind.” When this is applied to investing dollar signs would appear in the eyes of most traders.

Yes, the implications are positive, but they are not ground-breaking. As reported in Forbes, “it’s incremental, not revolutionary.” However, this doesn’t mean that it can’t be applicable in the mainstream industry. My success within the markets is somewhat down to using tried and tested algorithms, which students at Samuel and Co Trading can utilise. Artificial intelligence is a set of algorithms working in unison to predict unforeseeable circumstances. For the future of investment and trading, using AI could be a game changer and potentially change the way we invest. However, it is vital not to rely on this technology solely. Although designed to predict the unpredictable, it is essential to keep an eye on the game and not become complacent.

The Reality of Risk Management

In terms of helping you to place trades and build up your portfolio, it can be an asset, but you must be wary that it cannot perform singularly.

However, when it comes to risk management, there is a significant positive shift. Using artificial intelligence for investments and trades can be somewhat volatile. Regarding risk, AI truly comes into its own, as it can measure and manage changes in the market while surveilling any disreputable transactions. Artificial intelligence can be a great tool when protecting your capital. Here at Samuel and Co Trading, we encourage our trainees to follow the rules of the market. However, using specific algorithms can assist when it comes to managing risk, especially for those who are new to the market.

AI: An Investment into your Future

Is artificial intelligence the future of investment and portfolio management? To summarise, when used to its highest functionality, it can be a practical second-hand man when managing your portfolio, predicting and producing your returns, and managing the level of risk. Particularly prominent when we consider the latter.

Artificial intelligence is becoming more and more prevalent in modern investment banking. According to Statista, machine learning usage in investment banking was up by 63% in 2020.

Artificial intelligence seems to be ebbing into all aspects of life, even in your personal life, with voice-activated light switches and self-driving cars. Why not apply this to your professional life and let it take the partial reigns on your investments? Although it may not be a complete life changer, a helping hand is always a bonus.