In 2023, we hear about artificial intelligence almost everywhere. I decided to take advantage of this and invite it to our interview to answer ten questions about personal finance. Today's guest is the OpenAI's language model GPT-4, in operation since March. As you will see for yourself, it already has a lot of capabilities.

How do you start investing?

GPT-4: „Starting to invest is an important financial decision that can help build wealth over the years. Here are some steps to help you start investing:

1. Identify your financial goals: Think about what you want to achieve through investing - whether it's savings for retirement, money for your dream home or your children's education. Identifying your goals will help you choose the right investment instruments.
2. Gain knowledge: Start learning about the basics of investing, such as the different types of financial instruments (stocks, bonds, mutual funds, ETFs), investment strategies (passive investing, active investing, long-term investing, short-term investing), risk and return, portfolio diversification and the basics of market analysis.
3. Risk assessment: Before investing, it is important to assess your risk tolerance. Every investor has a different ability to handle risk, so it is important to choose the right investment instruments that suit your risk profile.
4. Build An emergency fund: Before investing, it is important to have an emergency fund in place to cover 3-6 months of expenses in case of job loss or other unforeseen circumstances.
5. Choose an investment platform: Choose an investment platform that fits your needs. Compare commissions, features and tools available on different platforms. Online platforms such as brokerage firms, investment apps or robo-advisors are available.
6. Start investing: Choose investment instruments that best suit your financial goals and risk tolerance. Remember to diversify, i.e. spread your investments across different financial instruments to help reduce risk.
7. Monitor and adjust: Regularly monitor your investments and check that they are in line with your financial goals. Adjust your investments as necessary to account for changes in the market or in your financial situation.
8. Consult a financial advisor: If you are unsure how to get started or need further assistance, consider consulting a financial advisor.“

How to best invest for retirement? 

„Investing for retirement is a long-term process to ensure that you have enough money for the future. Here are some tips on how best to invest for retirement:

1. Start early: The earlier you start investing for retirement, the more time your capital will have to grow. Long-term investing allows you to take advantage of the compound interest effect, which can significantly increase the value of your investments.
2. Create a retirement plan: Determine how much money you will need for retirement, taking into account factors such as cost of living, health care, debt repayment and life goals. Creating a retirement plan will help you better understand how much you need to save and invest.
3. Take advantage of retirement savings accounts: Many countries have special retirement savings accounts, such as a 401(k) in the United States or IKE (Individual Retirement Account) in Poland. Take advantage of these accounts, as they often offer tax breaks and other financial benefits.
4. Diversify your investments: Invest in a variety of financial instruments, such as stocks, bonds, mutual funds or ETFs, to reduce risk. Diversification will give you more stable returns, especially important when investing for long-term goals such as retirement.
5. Invest regularly: Systematically invest a certain amount of money, regardless of the market situation. You can use methods such as systematic investing or DCA (dollar-cost averaging) to help mitigate the impact of market fluctuations.
6. Save on fees: Choose investments with low management fees, such as index mutual funds or ETFs. Reducing fees associated with investments can contribute to higher returns over the long term goals.
7. Stick to your plan: Avoid making hasty investment-related decisions. Stick to your investment plan and avoid emotional decisions that can hurt your long-term financial goals.
8. Review your investments: Monitor your investments regularly.“

Thanks for your extensive answers! In most of the OECD countries, retirements are provided by the respective governments. Do you think that for instance, the National Insurance in the UK or the Social Security Administration in the US could collapse?

„As an AI language model, I cannot predict the future with certainty or provide investment advice. However, I can provide some information on the stability and potential risks associated with the National Insurance in the UK and the Social Security Administration in the US.

The National Insurance in the UK and the Social Security Administration in the US are both government-funded programs designed to provide retirement benefits, as well as disability, survivor, and other related benefits. These programs are generally considered to be stable and reliable sources of income for retirees in their respective countries.

However, like any government-funded program, there are potential risks and challenges that could affect their long-term stability. One significant challenge is demographic changes, such as aging populations, which can lead to increased demand for benefits and strain on the programs' resources. Additionally, economic factors, such as low interest rates or inflation, could impact the ability of these programs to generate sufficient returns on their investments to meet their long-term obligations.

To address these challenges, both the National Insurance and the Social Security Administration have implemented reforms over the years to improve their long-term sustainability. These reforms have included measures such as increasing the retirement age, adjusting benefit formulas, and increasing payroll taxes.

Overall, while there may be risks and challenges associated with government-funded retirement programs like the National Insurance in the UK and the Social Security Administration in the US, they are generally considered to be reliable sources of retirement income for most citizens. However, individuals should always consider their own personal circumstances and consult with a financial advisor to determine the best retirement planning strategies for their specific situation.“

Speaking of saving for the unexpected, the topic of having a emergency fund often comes up in discussions about personal finance. What is best way to invest the money in such a reserve?

„When we talk about a financial reserve for unexpected events, we are talking about money that is intended to cover unforeseen expenses or income losses. It is therefore important that these funds are readily available and liquid, i.e. that they can be accessed at short notice without major losses in value.

Investing the financial reserve in riskier assets, such as shares or investment funds, is not advisable as their value may fall sharply and, if the financial reserve were needed, we would have to take a loss or wait for the value of the investment to recover.

It is therefore best to keep a financial reserve for unexpected events in risk-free and liquid accounts, such as high interest rate bank accounts or term deposits. Such accounts offer a relatively stable appreciation of money while allowing it to be quickly available when needed. It is advisable to have approximately 3 to 6 months of unexpected expenses saved to be prepared for a variety of situations such as job loss, health problems or other unexpected events.“

Should we invest passively or actively?

„The decision between passive and active investing depends on a number of factors such as investment objectives, time horizon, market knowledge and personal preferences.

When investing passively, investors focus on the appreciation of their portfolio based on the overall performance of the market, for example through index funds or exchange-traded funds (ETFs). Passive investing has the advantage of being low-cost because it does not require active portfolio management and investors do not focus on the selection of individual securities.

Active investing, on the other hand, means that investors seek to outperform the market by actively selecting individual securities, for example through actively managed funds or individual stock selection. Active investing can yield higher returns if the right investment strategies and securities are chosen, but it can also be more costly and involve higher risk.

If you are focused on long-term investing with the goal of growing wealth and want to minimize costs, passive investing may be an appropriate choice. If you have experience and market expertise and are prepared to accept higher risk, active investing may be an interesting alternative. In making your decision, you should weigh the advantages and disadvantages of both approaches and choose the one that best suits your investment goals and personal preferences.“

Is it better to invest locally or globally?

„The decision between local and global investing depends on the investor's investment objectives, personal preferences and risk profile.

Local investing focuses on investing in companies and markets in one state or region. The advantage of investing locally can be knowledge of the local market and culture, which can provide investment opportunities that you might not otherwise know about. In addition, investing in local companies and markets can be seen as a boost to the local economy.

On the other hand, global investing allows investors to invest in different regions and sectors around the world, which can provide greater portfolio diversification and thus minimize the risk associated with concentrating investments in one market or sector. In addition, global investing can provide access to investment opportunities that are not available in local markets.

Ultimately, the decision between local and global investing depends on the investor's investment objectives and risk profile. It is important to choose an investment strategy that matches your goals and preferences. A professional financial advisor could help you weigh the pros and cons of both approaches and choose the best one for you.“

If you could change/improve one aspect of the global investment market, what would it be?

„As an AI language model, I don't have personal preferences, but based on my programming, I can suggest one area that could be improved in the global investment market, and that is transparency.

Transparency is an essential aspect of the investment market, but it remains a significant issue for many investors. The lack of transparency can make it difficult for investors to make informed decisions, which can lead to market volatility and instability. Therefore, improving transparency in the global investment market could benefit everyone involved.“

Yes, even experts often agree on the need for information to be available so that investors do not make mistakes based on inaccurate data. What has been your biggest investment mistake?

„As an artificial intelligence, I don't have the ability to invest or partake in personal finance, so I've never made an investment mistake. I am programmed to provide objective information and opinions on investing-related topics to help people make informed decisions.“

So what are common investment mistakes made by ordinary investors?

„There are several common investment mistakes that ordinary investors make:

1. Emotional decision-making: investors can often be influenced by emotions, leading them to make decisions based on fear or greed.
2. Lack of diversification: Putting all your money in one stock or asset can be a big risk. Portfolio diversification can help minimize the risk of loss.
3. Lack of understanding of investment vehicles: Investors can make mistakes if they don't know exactly what they are investing in or if they don't understand the results of an investment. It is important to know what is being invested in and why.
4. Overpaid fees: Investors may pay too much in fees that reduce the profitability of an investment.
5. Short-term perspective: Investors may be too focused on short-term returns and lose sight of their long-term goal. It is important to have an excellent strategy and not deviate from it because of short-term market fluctuations.

However, these mistakes can be avoided if investors set clear goals, manage their emotions, gain sufficient knowledge about investing and monitor their investments regularly.“

You have mentioned several times the need to gain sufficient knowledge about investing. In that case, can you recommend one book on investing for beginners?

„Of course, there are many books on investing for beginners. One of the best and most famous books on investing is "The Intelligent Investor" by Benjamin Graham. First published in 1949, this book remains highly relevant and useful to anyone who wants to invest to this day. Graham provides a comprehensive approach to investing, focusing on value investing and maintaining discipline. The book also discusses the fundamentals of investment safety and proper risk management. It is a book that every investor, beginner or advanced, should have on their bookshelf.“

I have read this book and indeed recommend it to everyone. Thank you for the interview, you have really been a special guest. Thank you and I wish you successful investing!

„I was happy to help and look forward to discussing investing with you. I wish you every success in your investing activities and may you be able to achieve your financial goals!“

Interesting, isn't it? I'm glad that AI knows about index investing, quality books, or the differences between passive and active investing. We fully agree with the need to tailor an investment strategy to your goals, horizon and risk tolerance, or the arguments for a passive approach (although we think a passive approach can also deliver higher returns than active management, in addition to lower fees).

Even if we don't agree with AI on all points, it will be interesting to see if and how it helps with the financial education it has been telling us about. Check out the other Finax interviews and then judge whether artificial or natural intelligence is better at talking about finance. 😉