In the first installment of my three-part series, we explored the history and risks of strained intelligence (AI), expressly virtually your finances. In the second installment, we explored the limitations of AI regarding your investments.
The worthiness of chatbots to produce sensical, natural language responses to human prompts is remarkable. This had me wondering whether chatbots can truly offer quality, personalized financial advice? It was time for me to enter the ring and go throne to throne with AI on financial planning questions. Let’s find out how it did.
Putting AI to the Financial Intelligence Test
In my curiosity, I decided to test two well-regarded language model AIs – Chat GPT (Open AI) and Claude (Anthropic) – to see how they would respond to a worldwide financial planning question. The same question was posed to each AI.
We’ll uncork by reading each AI’s response to the question, then I’ll unravel lanugo each point it generated and provide my critique.
First Up: Financial Counselor vs. Chat GPT-4
Question: What is the right windfall typecasting for a 65-year-old retired couple?
Chat GPT: “Determining the right windfall typecasting depends on various factors, and it is not solely based on the individual’s age. For a 65-year-old retired couple, these factors might include their risk tolerance, financial goals, retirement savings, income sources, and life expectancy.
- Risk Tolerance: This refers to the stratum of variability in investment returns that an individual is willing to withstand. As individuals age, they tend to wilt increasingly risk-averse and thus may prefer a increasingly inobtrusive windfall allocation.
- Financial Goals: If the retired couple has specific goals in mind, like leaving a significant inheritance or donating to charity, then they may require a variegated typecasting compared to a couple who’s mainly focused on funding their lifestyle.
- Retirement Savings: The value of money the couple has saved for retirement is moreover crucial. If they have substantial savings, they may be increasingly well-appointed taking on some risk in their portfolio.
- Income Sources: A couple with significant guaranteed income sources (like Social Security, pensions, etc.) might be worldly-wise to take on increasingly risk compared to those who are heavily reliant on their investments for income.
- Life Expectancy: Longer life expectancy can influence the couple to maintain a unrepealable portion of their portfolio in growth-oriented resources like equities.
My Dispersal of Chat GPT’s Response
Chat GPT gave us a lengthy wordplay that is worth exploring in depth. To help determine the reliability of the information given and put it in context, here is my towage of the points Chat GPT made with regards to my original prompt:
Chat GPT: “Determining the right windfall typecasting depends on various factors, and it is not solely based on the individual’s age. For a 65-year-old retired couple, these factors might include their risk tolerance, financial goals, retirement savings, income sources, and life expectancy.”
Ok AI, this is a good start. It’s true but vague and not at all actionable. Still, let’s protract to review the breakdown.
Chat GPT: “1. Risk Tolerance: This refers to the stratum of variability in investment returns that an individual is willing to withstand. As individuals age, they tend to wilt increasingly risk-averse and thus may prefer a increasingly inobtrusive windfall allocation.”
Sure, but this misses the idea that stuff too inobtrusive or too warlike may place financial goals vastitude reach. A portfolio that is too inobtrusive may not produce the growth necessary to unzip one’s goals. A portfolio that is too warlike may be vulnerable to large losses from which an investor won’t have time to recover. Risk tolerance is nuanced and this towage is a wholesale generalization. Age certainly plays a role, but so do your life plans and past experiences.
Next Up: Claude AI vs. a Financial Counselor for Retirement Advice
Question: What is the right windfall typecasting for a 65-year-old retired couple?
Claude: Here are a few tips for determining windfall typecasting for a 65-year-old retired couple:
- At age 65, it’s worldwide to shift towards a increasingly inobtrusive windfall typecasting that has lower risk and volatility. This helps protect the nest egg as retirement continues.
- A moderate typecasting might be 60% bonds/fixed income, 40% equities. This provides some growth potential from stocks while moreover providing stable income from bonds.
- Another option is an typecasting like 50% bonds, 30% stocks, 20% cash/short-term. This remoter reduces volatility.
- Within equities, emphasize dividend paying stocks and stave high-growth sectors like technology. Focus on stable large-cap companies.
- Make sure to have 2-3 years of living expenses in unscratched cash-equivalents to imbricate near-term withdrawals without selling resources in a lanugo market.
- Hold some of the stock-still income portion in CD ladders to take wholesomeness of rising interest rates as shorter-term CDs mature.
- Rebalance portfolio when to target allocations at least once a year.
- As health needs increase in very wide age, consider shifting increasingly to mazuma to imbricate expenses.
The word-for-word typecasting depends on risk tolerance and income needs. A financial counselor can help fine-tune the percentages, but a wastefulness of stocks and inobtrusive stock-still income is prudent for 65 year old retirees. Let me know if you need any refinement or have spare questions!
My Towage of Claude’s Response
To then help determine the reliability of the information given and put it in context, here is my towage of the points Claude made with regards to my prompt:
Claude: At age 65, it’s worldwide to shift towards a increasingly inobtrusive windfall typecasting that has lower risk and volatility. This helps protect the nest egg as retirement continues.
This is typically true but this information is not actionable. Should this hypothetical couple wait until retirement to shift their portfolio towards a increasingly inobtrusive allocation, or do it sooner? At Abacus, our yearly vendee reviews diagnose whether your goals could be achieved with less risk taken in the portfolio. Windfall typecasting is a conversation at every age.
Claude: A moderate typecasting might be 60% bonds/fixed income, 40% equities. This provides some growth potential from stocks while moreover providing stable income from bonds.
Like GPT, Claude is suggesting a portfolio that a financial counselor may regard as too inobtrusive for your particular situation. Too little growth potential can leave you exposed to inflation and with inadequate growth to unzip your objectives.
Claude: Another option is an typecasting like 50% bonds, 30% stocks, 20% cash/short-term. This remoter reduces volatility.
Whoa, this is plane increasingly conservative! It results in an 8.8% reduction in sustainable income and a 16% lower inheritance for heirs versus a 60/40 allocation. Knowing the specifics of a person’s financial situation is crucial as it allows a financial counselor to work with clients to fine-tune their investment typecasting to their needs and goals.
Conclusions well-nigh AI’s Financial Advice
Chatbots are decent at furnishing context to remoter explore questions, financial or otherwise. But AIs don’t have your financial specifics – and that is the hair-trigger piece to producing quality financial translating from anyone, AI or human.
Remember, Chat GPT and Claude are large language models. By observing vast stretches of the internet, chatbots learn to predict the most likely next word and may only provide answers that sound correct. Chatbots are not engaging in logic or reasoning. It’s important to note that they can moreover produce patently false recommendations.
This is where we are today and I will protract to alimony an unshut mind. For now, Chatbots are much increasingly an indication of AI’s potential than a productivity tool that is ready for professional primetime.
I am incredibly excited for the efficiencies that it may bring to my writing, for how it may help firms like Abacus largest wangle their internal knowledge wiring and automate unrepealable mundane tasks. I imagine that many of the information tools and services will find ways to embed AI to increase productivity.
For genuine, thoughtful, and specific translating regarding your personal financial planning situation, reach out and schedule a undeniability with Abacus today. Let us help you expand what is possible with money, with human intelligence and experience.
Disclosures:
Historical performance results for investment indices, benchmarks, and/or categories have been provided for unstipulated informational/comparison purposes only, and often do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be unsupportable that your Abacus worth holdings correspond directly to any comparative indices or categories.
Please Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be increasingly or less volatile than your Abacus accounts; and, (3) a unravelment of each comparative benchmark/index is misogynist upon request.
