AI Money Management: How AI Can Manage Personal Finance

Having an investment portfolio can be a fantastic way to enjoy a passive income. However, without the right tech, it stops being so passive and can actually demand a lot of research, work, and focus. 

The wealth management industry in the financial sector aims to make it as easy as possible to keep track of your personal finances and optimize your portfolio. The recent emergence of AI technology has revolutionized this. 

So, let’s find out how to make the most of the current artificial intelligence tech developments, their benefits, and the best tools to help you get started.

How AI can be used for wealth management

AI technology like machine learning algorithms and natural language processing (NLP) have taken the fintech industry by storm. This can only be good news for those managing their personal finances. But how exactly can you utilize these advancements? 

The following use cases are employed by huge wealth management firms, like Morgan Stanley, but they can also be used for your own smaller portfolios. Instead of using a traditional financial advisor, many people can get the same benefits and advice from AI-powered tools.

Financial planning

Did you know that artificial intelligence can be a real game-changer when it comes to personal finance management? For example, it can help you:

  • Create and stick to a budget by analyzing your income and expenses
  • Identify patterns in your spending and suggest areas where you can cut back using machine learning algorithms 
  • Help you make accurate financial decisions from actionable insights
  • Plan for taxes by analyzing your financial data and identifying potential tax deductions and credits
  • Create strategies for reducing your tax liabilities by identifying patterns in your tax data
  • Assess your personal finance to help in retirement planning

This can make it infinitely easier to achieve your financial goals, like saving for a down payment on a home or paying off debt. Ultimately, it means you can keep more of your hard-earned money in your pocket.

37% of financial services firms globally adopt AI to reduce operational costs.

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Investment decisions

Decision-making can be the most stressful element of investment. By using AI, you can eliminate the guesswork and build your portfolio on facts and statistics. AI can analyze financial data from all sorts of sources, such as:

  • Company reports
  • Market data
  • Economic indicators

And more to identify patterns and trends. That way, you can make informed decisions about which stocks and other assets to buy or sell.

But that’s not all! AI can even analyze social media and news articles to determine the sentiment around particular companies or industries. By keeping an eye on the market sentiment, you can make the right choices about when to enter or exit a particular investment. Who knew social media could be so useful?

Portfolio management

AI can take your investment portfolio to the next level. One of the most useful ways to utilize this tech is to analyze the performance of different assets. By identifying which ones are performing well and which ones aren’t, you can adjust your portfolio and improve overall performance. It’s like having your own personal investment guru!

AI can also help portfolio managers determine when to rebalance a portfolio and what initiatives to focus on. By using machine learning algorithms to analyze market data, it can identify when an asset’s weighting in the portfolio has shifted significantly from its target allocation. This way, you can make informed decisions about when to sell or buy assets to maintain the desired asset allocation. It’s like having an extra pair of eyes on your portfolio, so you can rest easy knowing your investments are in good hands.

Check out the case study below, which tested an AI trading model against the S&P 500 (stock performance of 500 of the largest companies).

A graph that shows how an AI trading model outperformed the top 500 investment companies.

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Risk management

Risk is what puts many people off investing. But it’s also what keeps many people in the game. Using AI can greatly reduce the potential for loss by identifying risks associated with different investments. By analyzing historical data using machine learning algorithms, it can identify patterns that could prove tricky to navigate. This can help you decide which investments to avoid or how to mitigate potential risks.

AI can also help you assess the risk associated with different investments. By analyzing financial data in real-time and calculating risk metrics like value at risk (VaR) or conditional value at risk (CVaR), you can get a better understanding of which investments are most suitable for your risk tolerance.

Finally, AI can even be used to stress test your portfolios and assess their resilience to different market scenarios. AI algorithms can simulate a range of market scenarios and assess the impact on your portfolio’s value. With AI on your side, you can manage investment risks like a pro!

Forecasts

It’s becoming clear that AI can massively improve your decision-making. Another way it can do this is by forecasting upcoming events. With the power of machine learning algorithms, AI tools can analyze historical price data and market trends to predict future price movements of individual assets, like stocks, bonds, or commodities. 

By identifying patterns and correlations between different variables, AI can forecast future market movements and give you a competitive edge to buy or sell assets at the right time. With AI at your fingertips, you can gain a deeper understanding of market trends and ultimately become a more successful trader.

3 Best AI tools for wealth management

Everyone’s news feeds are populated with AI use and talk of generative AI like chatbots, robo-advisors, and, specifically, ChatGPT. However, when it comes to wealth management, there are plenty of advanced AI models designed specifically for financial planning. Take a look at our Top 3.

1. Wealthfront

Wealthfront is an investment management platform that uses AI to provide personalized investment advice. The platform uses machine learning algorithms to analyze users’ financial data and recommend investment portfolios based on their risk tolerance and investment goals. 

It specializes in two main areas:

  • Automated investing: The software can build and manage a diversified portfolio. After asking just a few questions, you can have a personalized portfolio built, balanced, and managed for you. You can even determine what level of risk suits you best before you start. 
  • Stock investing: Wealthfront’s database of stocks means you can find the perfect investment opportunities in seconds. With fractional shares and no commission, the software can be your go-to for organizing and planning your investment portfolio.

So, what can you expect to pay for something so helpful? Instead of subscription prices, Wealthfront charges 0.25% annually for their automated service. So, it can be as affordable as you’d like. 

Shows a sliding scale of costs where the software takes 0.25% for an annual advisory fee.

2. FP Alpha

The FP Alpha platform combines expert financial advisors with advanced AI to provide the best advice for all types of financial planning. This includes:

  • Estate planning: By simply uploading legal documents, FP Alpha can summarize and visualize the key assets and help advise on how to distribute them.
  • Tax planning: The AI can provide an instant snapshot of all 16 areas of tax planning.
  • Insurance planning: The platform can read lengthy insurance documents and extract key information and insights from them in seconds. 

FP Alpha is a real timesaver and an incredibly useful tool when it comes to asset management. They offer multiple different plans, so it’s best to contact the sales team and see what they can do for you. Alternatively, why not schedule a demo to see if you think they’re a good fit?

What is AI-assisted holistic financial planning?

3. M1 Finance

M1 Finance is a one-stop shop for all of your wealth management needs. You can pretty much do it all from their platform, including borrowing, spending, saving, and investing. Their investment plans cover a range of accounts, like:

  • Retirement 
  • Brokerage 
  • Crypto 
  • Trust 

At just $125 a year, M1 is a great option to have all of your wealth management needs met in one easy-to-use site. Below you can see how it compares with its competitors.

Benefits of using AI in wealth management

It’s probably becoming clear just how many benefits there are of using AI in wealth management. From reducing costs and timelines to opening up a world of data that’s hard to find, check out how it can help you. 

Improved efficiency and automation

AI can automate repetitive tasks and streamline processes, which can save time and reduce costs. By forecasting changes in trends and markets, you can be sure to adapt your investment strategy before you experience any losses. This can improve your economic efficiency, as well as your time efficiency. 

Personalization

AI can analyze vast amounts of personal data to make sure your investment portfolio is optimized for you, such as:

  • Financial history
  • Risk tolerance
  • Investment preferences

This makes getting advice specific to your investments and financial situation much easier, helping you stay organized.

Reducing risk

AI’s insights into market trends and its ability to assess risk can be used to help make informed decisions about how to adjust an investment portfolio to mitigate potential risks. This can also make it easier to scale up your investments and grow a portfolio without the added expense of a team of financial advisors. 

Another element of risk management refers to cybersecurity. AI can:

  • Handle and keep a lot of personal data safe
  • Help identify threats
  • Identify weak points in business networks
One of the most significant business cases for AI in finance is its ability to prevent fraud and cyber-attacks

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Access to data

AI can make data research a breeze. Rather than spending hours trawling through different market trend sites, AI platforms can summarize huge amounts of data and offer key insights. This can be the difference between a thriving investment portfolio and a failing one. 

Many AI platforms have insider access to financial institutions and their data, which otherwise may be hard to find. It’s important to take advantage of this advanced tech to stay ahead of the trends and make the right decisions.

Conclusion

AI solutions have made personal finance management a lot easier and more accessible. Now, instead of hiring a team of advisors and contacting various banks, the next best action is to automate your portfolio and financial decisions through the platform of your choice.

So, let artificial intelligence take care of your financial well-being and see your wealth grow.

There’s no better option than data-driven insights and management, so don’t get left behind. Find the best AI financial service tool for you in our extensive library of apps and revolutionize your portfolio and increase your net worth.