If you haven’t heard, mansplaining is out; robotsplaining is in. Here’s what you should know about ChatGPT financial advice.
ChatGPT is an AI-based chatbot that answers your questions in real-time, including the ones about money you wouldn’t even ask your bestie. It scours the internet, doing the heavy lifting of research for you, then delivers answers all but tied up in a bow.
I’m impressed.
I’ve been immersed in personal finance and investing for a decade and have seen some pretty cool tools, but this takes the cake. ChatGPT has already saved me hours of time I’d otherwise spend researching, sifting through, and synthesizing dense information.
It can probably do the same for you, but that doesn’t mean ChatGPT’s financial advice is a silver bullet. Here’s what you should know about its limitations and how to use the chatbot effectively.
ChatGPT feels like Slacking with a colleague.
ChatGPT financial advice is delivered in a conversational format. Using it feels more like talking with a friend who knows a subject well and less like reading a term paper.
For topics we should probably understand (like the basics of taxes 🆘) but would rather wear low-rise jeans again than learn, it’s a godsend. Gone are the days of subjecting yourself to the entirety of content to find the piece of info you need. Now, you can ask ChatGPT.
And if the initial response goes over your head, ChatGPT can clarify even further. A shameless trick I like to use is asking the same question, but request GhatGPT explains it to you like a 5th grader.
At times, we’ve all experienced this feeling: confused but afraid to look stupid by asking for clarification, especially when it comes to money questions. No one knows you like your Google search history for a reason. The ability to ask follow-on questions without fear of judgment is, in my eyes, one of the best parts of ChatGPT financial advice.
ChatGPT doesn’t know the next big investment idea.
This was the logical first question on most of our minds when rumblings of ChatGPT’s financial advice potential began. If this piece of AI technology is all-knowing and can seemingly think for itself, shouldn’t it know the next best thing?
Well, not quite. ChatGPT gleans knowledge from what exists on the internet today. What exists on the internet is, by definition, events that have already occurred or thoughts that have already been had. It formulates a reasonable (and human-sounding) response based on what it scrapes.
Think of ChatGPT as much more of a conventional wisdom generator than a think-tank when it comes to financial advice.
You’ll get the collective wisdom (or lack thereof) from the internet but no real insight into what the future holds. For this reason, ChatGPT can’t tell you the next big idea. Even if it could, there are a million other people out there asking it the same questions as you.
ChatGPT is a starting point for new endeavors.
ChatGPT quickly generates ideas, which makes it a wonderful springboard if you’re new to a topic, in the brainstorming phase. Let’s take opening your first investment account, for instance. You could ask, “Where can I open a brokerage account online?”
ChatGPT would respond with leading online brokerage firms. From here, you can research which is best for you.
This is a better solution than today’s alternative: Googling the same question only to sift through a nauseating number of paid ads to find a legit search result.
ChatGPT outlines practical paths forward, almost like a financial coach would. It can open your eyes to considerations you were blind to otherwise. Take this query on Roth IRAs for instance.
Nothing profound, but ChatGPT’s answer alerts you to income limits on Roth IRAs. From there, you could ask further questions to determine if the income cap applies to you.
In most cases, digging deeper with follow-on questions led me to practical answers – ones that are useful in the real world. I mean, how many times have you referenced a detailed guide to learn how to do something and finished with more questions than you started? Now you can ask them in real-time along the way.
You must ask ChatGPT the right financial advice questions.
Here’s a catch: To get ChatGPT financial advice that’s any good, you need to ask the right questions. Getting quality answers requires giving quality context, and it’s you alone who must recognize exactly what’s relevant. ChatGPT won’t proactively ask you for necessary details.
For example, let’s revisit our Roth IRA query. Pretend you started with, “How to invest in a Roth IRA,” without realizing you could be precluded from contributing to one altogether.
Of course, ChatGPT will tell you how to get started, but it’s not going to mention the Roth IRA income limits. You didn’t ask for them. You can see how easy it would be to go rogue and realize your mistake when you owe penalties or taxes come tax szn.
In this way, looking to ChatGPT for financial advice feels a lot like consulting an intern.
Most of what they tell you (but not necessarily all, as we’ll see next) is correct by textbook standards. They’re going to play it safe, delivering only what you asked for – nothing more – even if other considerations are crucial. You’ll get somewhat cookie-cutter answers to your unique questions.
ChatGPT financial advice can be wrong.
Just like not everything you read on the internet is true, ChatGPT financial advice can be blatantly wrong. Unfortunately, you won’t detect much uncertainty in its delivery. This thing gives dead-wrong answers with the confidence of a middle-aged white man.
ChatGPT’s accuracy depends on the source content from which it learns. Then, add to this the complexities of formulating a real-time response to you, with no intermediary policing the quality of what you’re getting. This can be a risky mixture to inform your financial decisions.
Here’s an example of a troubling response. I asked, “What are good investments for first-time investors?”
I’m glad index funds made it to the top of ChatGPT’s list, but I wouldn’t put them there because they’re all low-risk investments. Take the S&P 500 Index (passive ETF ticker: SPY) for instance. In 2022, it fell about 25%. I wouldn’t exactly call that low-risk.
Further, assuming most first-time investors are young, I generally suggest they take more risk when they’re new to investing. Your teens, 20s, and 30s is the time to shoot your shot. If and when markets fall, you have tons of time to recover.
To mitigate the chance of taking bad ChatGPT financial advice, always confirm what you learn with reliable external sources before putting it into action. In fairness to our robot friend, ChatGPT will be the first to tell you, you may want to consult with a human advisor.
The bottom line.
ChatGPT is a powerful new tool, but I wouldn’t implement financial advice from it without confirming what you learn elsewhere. Its conversational nature makes it more approachable than the traditional financial advice industry today, which is half the battle.
It’s a great starting point to brainstorm ideas or ask questions, especially the ones you feel silly asking.😳 ChatGPT won’t lead you to the next hot stock, however. AI has impressive range, but it’s not clairvoyant.
You’ll get out of it what you put in. Receiving quality ChatGPT financial advice requires asking the right questions and providing appropriate context. Because it misses the mark without both, I believe the stakeholders who stand to benefit the most from ChatGPT financial advice are individuals who are already DIY investors and financial professionals, including advisors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor.