Fusion of AI and humans
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Many of the young professionals I speak to look at the rise of AI and ask me whether they should tilt their portfolios in a different direction to maximize profits. In fact, the impact of AI is already reflected in the most widely diversified portfolios. Nobel laureate Eugene Fama said that markets are generally efficient, that all available information is reflected in stock prices, and that there is no need to overweight your portfolio in any one sector. .
I think of the rise of AI as being like the Industrial Revolution of 1760-1840. The Industrial Revolution improved certain processes already in place and also opened new doors. Let's explore AI, the current state of AI in the three largest stock sectors of the S&P 500 (information technology, healthcare, and financials), and why you shouldn't let it change the way you invest.
information technology
As we saw in 2023, information technology has been the easiest to incorporate AI into daily work. Many tech companies have discussed AI implementation with shareholders during their earnings calls, and because many of these companies are cloud-based, they have been able to implement AI at relatively low cost.
Yes, there are still bugs. I don't plan on buying anything from AI-based robocallers anytime soon, and AI-based customer service still leaves a lot to be desired, but many innovations have come a long way in the last few years. . With relatively few regulations impeding progress, the technology sector has been able to adapt very quickly.
If you're investing in index funds, you don't need to do anything because the particular sector that's increasing its share of the overall market has already been captured. At the beginning of 2010, the technology sector accounted for only about 21% of his S&P 500, according to Syntax Data. In contrast, the technology sector accounted for 37.5% of the S&P 500 as of September 2022.
health care
Some AI innovations in healthcare are groundbreaking. Here are some usage examples:
- assist in patient diagnosis
- Drug discovery and development
- Improved patient communication and monitoring
- assistance with surgery
- Transcription of conversations and medical documents
Many of us know that healthcare workers are overworked, and putting systems in place to support them can have hugely positive implications for both healthcare workers and patients. there is. However, much of this technology still needs to be monitored and verified by medical professionals.
As with technology, innovation and efficiency gains in this sector will lead to higher stock prices and commensurately higher healthcare exposure in a well-diversified portfolio.
finance
AI is being tested in many areas of the financial sector, but similar to healthcare, it will only work effectively as an aid to experts in the field for the time being.
When it comes to AI-powered stock portfolios, numerous studies have found that AI-powered portfolios consistently underperform their benchmarks. This is probably due to the saying, “Garbage in, garbage out.” If someone incorrectly predicted what the market would do and then told the AI to buy stocks according to that prediction, it would all be a useless analysis.
According to a 2023 study by the CFP Board, 31% of people would be willing to accept unverified financial advice from an AI, while 52% would accept advice verified by a financial advisor. The study also found that young people are more cautious than older generations about using AI for financial advice. This is likely because young people have more frequent interactions and are therefore better able to understand the limitations of AI.
Similar to the healthcare sector, AI plays a role in organizing and analyzing data to support financial professionals. Lower costs and increased productivity in the financial services industry will drive up stock prices and increase sector exposure in a well-diversified portfolio.
conclusion
The Industrial Revolution brought with it the steam engine, an amazing invention that replaced horse-drawn carriages for transportation. As a result, humans can now travel faster and farther than ever before. In many ways, I believe the rise of AI will enable humans to do the same. It eliminates mundane tasks like organizing, testing, and processing data, giving humans the privilege of higher-level thinking. Because these innovations will impact entire industries, the rise of AI means that investors should maintain broad portfolio diversification rather than tilting their portfolios disproportionately toward any one industry.
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Cicely Jones (CA Insurance Lic. #: 0K81625) sells securities through Equitable Advisors, LLC (New York, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors of Michigan and Tennessee). and offers pension and insurance products through Equitable. Network, LLC does business in California as Equitable Network Insurance Agency of California, LLC. Financial Professionals may only transact business or respond to inquiries in states in which they are properly qualified. Any compensation that Ms. Jones may receive in connection with the publication of this article is made separately and solely in Ms. Jones's capacity, separately from Equitable Advisors, LLC and her Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). You can get more than that. AGE-6212781.1 (1/24)(Exp. 1/26)
