One of the pressing question I had in mind since I have started using ChatGPT and other LLM tools is :
Can they act as a reliable financial advisor ?
Before digging into the answer, first things first : what is the primary rule for financial advisors ? Simple : Design a financial portfolio that suits the customer needs.
This leads to the other question : What is a financial portfolio ? Simple : a collection of financial products that serves the targets of the customer (Stocks, Bonds, Index-Funds, Precious metals, etc…). Exploring this topic, a quick Google search reveals four primary factors to consider:
1️⃣ Risk Attitude: This reflects the investor's preferences and is shaped by a "risk questionnaire" that helps determine the suitable risk tolerance. Recommendations from financial planners are also based on this assessment.
2️⃣ Timescale: The investment horizon significantly impacts asset allocation, as short-term investments are more susceptible to fluctuations.
3️⃣ Target: The primary goal could be to increase wealth or generate an additional income source.
4️⃣ Diversification: The advantages of diversification are well-documented, though achieving it is complex. Effective diversification depends heavily on the three preceding factors and requires ensuring that the selected assets have minimal correlation to reduce risk.
Considering these elements, one might ask ChatGPT to act as a financial advisor and evaluate its responses (see attached images). The images suggest that ChatGPT captures the fundamental aspects of financial planning. However, a more systematic approach is necessary to thoroughly evaluate ChatGPT-generated portfolios.
For a rigorous assessment, researchers have systematically compared these portfolios with those created by human financial advisors and simulated expected returns. Detailed insights on this evaluation will be shared in the next post to keep this one concise.
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