Investors' Guide to ChatGPT: Things to Consider

Experian conducted a survey showing that one-third of participants seek information on new topics or finances using generative artificial intelligence (AI). Although 96% of participants reported positive experiences, it is important to remember that AI's responses are not always the best options. This is especially evident when asking questions about specific topics like the stock market, where significant information gaps exist in AI's knowledge.

A team from GOBankingRates asked ChatGPT, "If I invest $10,000 in Nvidia today, how much will I have in 2045?" ChatGPT indicated that the investment's value would fall between $38,000 and $164,000—a wide range for a prediction. When financial experts saw this response, they did not hold back in commenting.

There are several points to consider when seeking financial advice from ChatGPT while investing. Models like ChatGPT cannot pull live prices or current market conditions. This can significantly affect the accuracy of predictions.

Kevin Marshall, a CPA and lead author at Smithii Tools, stated, "If you want a projection based on today's stock prices, current bond yields, or exact fee schedules in your account, it will not obtain that data. Any plan based on current data needs a source that provides real-time updates; otherwise, you're working with placeholders."

Dat Ngo, a licensed CPA and personal finance expert at Vetted Prop Firms, emphasized that ChatGPT has many shortcomings in stock predictions. He pointed out that when looking at ChatGPT's calculations, the model does not account for market fluctuations. "If an investment loses 50% in one year and gains 50% the next, the arithmetic average of the two years is 0%, but $10,000 drops to $7,500. This difference is the effect of volatility, which is ignored in these calculations," he said.

Ngo also noted that ChatGPT does not consider factors such as dividend reinvestment, capital gains taxes, transaction costs, corporate actions, or inflation.

"A better approach for a single stock is to conduct scenario analyses linked to fundamental data and valuation. Use expected returns and historical volatility to perform a Monte Carlo analysis. Present a range of probabilities, show after-tax and inflation-adjusted figures, and clearly state your assumptions. This allows the reader to obtain a decision-making tool instead of a mathematically embellished prediction," he added.

Marshall also mentioned that there are ways to utilize ChatGPT in finance. "Use ChatGPT as a coach for understanding rather than a calculator. Ask for explanations in simple language. ChatGPT is a great storyteller but is not the source for precise calculations. Combine its clarity with real data, appropriate tools, and a transaction process that respects taxes and risks," he explained.