Machine Learning methods have the potential to bring greater efficiency, higher returns and greater transparency to those who are using it

Human biases come into play, and as a result affect just about every domain. Be it the education industry, the hospitality industry, or the entertainment industry — it’s a human attribute and equally applies to all the sectors with a human presence.

Even the investment sector, which is a heavily regulated domain, has not been spared. For instance, your portfolio manager, who is just another human being, might have his opinions influenced by his mood. Unknowingly. Based on the recent turn of events around him. Say, a fight with his spouse. Or a bad lunch. Maybe an unclosed deal. Or even having difficulties in booking an Uber. You’d never know.

Given that these biases come into play unknowingly, you cannot actually do anything about them. You will never know when these will kick in and unless you’re a psychology or a behavioural studies major, you cannot even shield yourself against them.

When it comes to the money markets, what customers desperately need today is simplicity – numbers they can understand, strategies they can relate to, and most importantly, the feeling that they are in control of their future.

Which brings me to the two most important concerns investment firms around the world are trying to address – an increasingly low risk game and a DIY approach to things.

Now, as easy and straightforward that might sound, the bad news is it’s getting progressively difficult to implement them. The reason? Users are increasingly getting flooded with options. This not only elongates their decision making time but also makes them more sophisticated in terms of their selections.

So, how to help the cause?

Well, this is where Artificial Intelligence (AI) comes to the rescue. And firms that will be able to blend man and machine, will lead the pack.

Also read: 4 ways artificial intelligence is innovating e-commerce

AI has the ability to analyse data and learn from it. This can be useful in executing certain complex investment models, trading efficiencies and helping fund managers gather and interpret reams of information. With a combination of technologies including machine learning, deep learning and conversational technologies, AI has the potential to build efficient portfolios — cutting costs, mitigating risks, and promoting more diversified and higher return investment vehicles.

To put that into perspective, anyone who does not want to hire a financial advisor or has typically been a DIY investor, but no longer wants to chart that course, can take the help of such platforms. Algorithms today have the power to automatically select investments and build a diversified portfolio, on the basis of one’s objectives. Once funds are invested on an ongoing basis, the software can automatically make changes or balance the investments, to align to one’s goals; thereby, all but eliminating the entire human bias concern.

Given the fact that AI can read and understand billions of pieces of data, it becomes far easier to spot trends with its aid. It’s emergence can solve portfolio management challenges as well, such as uncertainty and future predictions. Courtesy of this, fund managers can take positions in the market and have better visibility of risk -reward parameters. AI based on market conditions can dynamically allocate assets, thus cutting unnecessary risk to meet your future goals.

AI will help fund managers take investment decisions based on customer’s unique financial goals – and not simply “rules of thumb”.

Machine Learning methods have the potential to bring greater efficiency, higher returns and greater transparency to those who are using it. However, at this stage, there is no denying the fact that AI today generates fear (traditional fund managers), scepticism (yet to be fully tested) and excitement (investors expect better risk mitigated returns), all at the same time.

—-

e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.

Photo by Dominik Scythe on Unsplash

The post AI in investing reduces risk, enhances DIY capabilities, and removes human biases from the equation appeared first on e27.