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What AI Can - and Can't - Do for Your Investments Thumbnail

What AI Can - and Can't - Do for Your Investments

Insights Investing

Artificial Intelligence (AI) is rapidly transforming industries—from healthcare to finance—and investment management is no exception. Headlines suggest that AI can outperform humans, pick stocks, and even eliminate the need for financial advisors. But how much of this is hype, and what’s actually true?

Let’s separate reality from fiction.

What AI Can Do

AI excels at processing massive amounts of data quickly. Quantitative hedge funds and institutional investors already use machine learning to detect market patterns, price anomalies, and trading signals. For example, firms like Two Sigma and Renaissance Technologies rely on AI-driven models to execute high-frequency trades based on complex algorithms.¹

Retail investors can also benefit. AI powers robo-advisors like Betterment and Wealthfront, which automate portfolio allocation based on risk tolerance and time horizon. AI tools can also flag suspicious transactions, optimize tax-loss harvesting, and rebalance portfolios efficiently.²

AI is also helping advisors improve client experience. Tools like FP Alpha use AI to analyze tax returns and estate documents, while Holistiplan uses natural language processing to streamline financial planning recommendations.³

What AI Can’t Do

Despite its strengths, AI has serious limitations when it comes to personal finance and long-term investing.

  1. AI lacks judgment. It can’t account for emotional nuance, evolving goals, or values-based decisions like legacy planning or charitable giving.
  2. It can't predict black swan events - major crisis that seemingly come out of nowhere. AI models are built on historical data. They often fail during unforeseen crises—just ask investors who relied on algorithms during the 2020 COVID crash.
  3. It doesn't replace relationships. A trusted advisor provides more than just portfolio advice—they offer behavioral coaching, accountability, and context, which AI cannot replicate.

Vanguard’s research shows that behavioral coaching and relationship support from a financial advisor can add up to 3% in annual value to a client’s net return.⁴ That’s not something AI can offer.

The Bottom Line

AI is a powerful tool—but it’s still just that: a tool. The most effective financial strategies come from combining cutting-edge technology with the wisdom and empathy of a human advisor. Rather than fear AI, smart investors—and their advisors—should learn how to integrate it.

Sources:

  1. CNBC – “How hedge funds are using AI to win big” (2023)
  2. NerdWallet – “Best Robo-Advisors of 2025”
  3. Financial Planning – “How AI is reshaping advisory firms” (2024)
  4. Vanguard – “Advisor’s Alpha” study (2023)