Robo Investing and AI. No, They are Not Foolproof.

An Earth Goddess riding an elephant, in the style of Van Gogh. Generated by Facebook AI.

H.M. King Charles III as an earth champion. An AI image generated y DeepAI.Org.

Natalie Wynne Pace as an earth Queen. An AI image generated y DeepAI.Org.

Dr. Jane Goodall as an earth chamption. An AI image generated y DeepAI.Org.

Robo Investing and AI. No, They are Not Foolproof.
 
One look at the images above and their captions reveals some of the inherent flaws of artificial intelligence. Look closely at the descriptions and see how well artificial intelligence got to creating a picture from the prompt. While the images are captivating, they seem unaware that the prompt was to start with an actual person -- even one as well-known as H.M. King Charles III. As another example of an AI glitch, I was staying at an Airbnb. AI figured out the address I was staying at, and sent me an ad for small dog food. A small dog did actually live at that address. However, it did not belong to me.
 

​While AI does better with the prompt, “an astronaut riding a horse in the style of Picasso,” it’s certainly no masterpiece. Nor does it really imitate Picasso's style very well.

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So, if images and ads aren’t easy, how great are the robo-plans for your wealth? Could they be missing important information, or putting you in high-risk investments that might seem to be safe from the title or description? Are you missing out on the explosive growth of the AI industry itself?
 
Below are the topics I’ll address in this blog.
 
Is AI Smarter than Humans? 
Poor Programming
Greed 
Last-Century Strategies 
Exposure to Industries or Countries That are Risky 
Misleading Labels 
Undercapitalized Fund Companies 
 
And here is more information on each point.
 
Is AI Smarter than Humans? 
Wall Street is in love with artificial intelligence. Investors have made Nvidia the most valuable company in the world. Aside from how much you should invest in AI, there is the question of how much you should trust AI to do your investing for you.  
 
Everything that artificial intelligence is creating is drawing from the programming and habits of humans. I recently took a robotaxi. It’s driving on streets constructed by homo sapiens, and using human-built cameras and programming to navigate. A similar process is used for robo-investing. If the programmer and road maps are great, then the experience might be pleasant – unless there is an abrupt shift in the landscape.
 
Some of the robo-brokerages are using some sort of modified Modern Portfolio Theory, just as we use in our pie chart system. However, the funds that they are calling diversified are not necessarily as diversified as you might think. A sample portfolio that I looked at had funds with names that didn’t truly represent the holdings and had put the investor in a country that is quite clearly out of favor at this time. The funds are often limited within a narrow range of possibilities to choose from. Old-school brokerages will tell you there’s no need to use AI because they have one or two funds that can do everything for you (except perform well and protect your principal, but that’s another blog).
 
Poor Programming
I just created a Robo portfolio on my personal brokerage account. I answered all the questions as if I were someone in retirement who had no appetite for risk. I ended up with a portfolio that was 50% bonds, 40% stocks and 10% cash. There are a couple of challenges to this. One is that if I’m already in retirement, chances are that I’m over 65. An age-appropriate plan would keep at least 65% safe.
 
We are currently overweighting safe based upon data-driven market analysis – another tool that the AI program was missing. A retired person overweighting safe might have most of their nest egg investments in safe assets – not necessarily bond funds or cash. (We cover what’s safe for a full day at our Financial Freedom Retreat.) In today’s Debt World, fixed income, which is traditionally considered “safe,” can be very risky. Bonds lost more than stocks did in 2022, and continue to suffer from low credit quality and duration risk.
 
So, there are many important nuances that the AI wealth plan wasn’t programmed to factor in. (If the program isn’t taught to do this, chances are the broker-salesmen aren’t either.)
 
Greed 
Sadly, most of our goods are sold to us by someone who is incentivized and/or pressured to sell us things that might not be in our best interest. We might be convinced to buy more home than we can afford or a snazzier car than we need for our commute. Up to 82% of homebuyers in the last couple of years have buyer’s remorse and feel that the process was misrepresented to them in one way or another. They felt pressure to purchase without doing proper due diligence, or were relying upon the assurances of the broker-salesman, without reading the fine print.
 
These homebuyers are aware of their displeasure because so many are taking on debt or struggling to make their mortgage. That is not the case with most investors – yet. Stocks keep hitting new highs, so it’s easy to be complacent and think things are going great, even with a plan that is underperforming, experiencing paper losses or is vulnerable to an implosion in the next recession.   
 
Again, the selections that the artificial intelligence has to choose from will be provided by the computer programmers who work for the brokerage. So, the robo-investing will reflect the ethos of the company that they work for. An old-school brokerage might want to sell you target date mutual funds (underperforming, higher fees, everything-and-the-kitchen-sink). A newer brokerage might have a deal with only a few fund companies. Both might give you a few options that have similar and limited exposure to only one area of the market.
 
Last-Century Strategies 
There are still a lot of retirement and investment products that were designed in the 20th Century. Sometimes these last-century choices are the only option in our employer-based plan. Other times, we might find them in our wealth plan because the funds pay higher commissions to the broker-salesman than ETFs do. Many target date and mutual funds underperform the S&P500 (with even poorer performance compared to the NASDAQ Composite Index). Many also have some risky fixed-income investments, some of which have seen losses.

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5-year performance of the Dow Jones Industrial Average (blue), compared to the S&P500 (pink) and the NASDAQ Composite Index (green). Source: Money.msn.com. Copyright Microsoft. Used with permission. 11.16.2024.

Getting safe, protected, hot and diversified is as easy as a pie chart. We have a free web app where you can mock up your own personalized sample pie chart. Email [email protected] to access the web app. If you are self-directing, this is likely less time and money with better performance and protection than you’d spend with someone else (or AI) managing your plan for you. If you are constrained by your employer-based plan, there are still ways to adopt the strategy, with a carefully crafted blueprint. Learning the life math that we all should have received in high school and college will make this process much easier. Join us at our Jan. 10-12, 2025 New Year, New You Financial Freedom Retreat.
 
Exposure to Industries or Countries That are Risky 
One of the robo-selected funds had a lot of Chinese companies. China is considered to be a repressed economy, which many fiduciaries will not touch. Chinese equities have been out of favor since early 2021. Many funds have lost 30% or more in the last three years. Investors have been recalcitrant to venture back in while tensions are running so hot between China and the U.S.

Meanwhile, the iShares MSCI Peru ETF is trading at a 5-year high, with a yield that is 61% higher than the Chinese fund as well. (Copper is high; Peru has been one of our hot countries for a few years.) The iShares Australia ETF is also performing better in both share price gains and yield. What kind of prompt would you need to write in order to discover these funds? It’s easy to understand which countries are hot, and which are not, at our retreats and master classes. You’ll also learn where to access the data to make the discovery on your own.
 
Misleading Labels 
One of my private coaching clients created a robo-portfolio with the prompt that she wanted ESG*. As I mentioned in my blog, ESG Investing is Missing the E, many ESG funds draw their selections from the S&P Global ESG Index. Just 20 of the world’s largest fossil fuel companies are responsible for over 1/3 of the CO2 in the atmosphere. Two of the Top 10 worst polluters – Chevron and ExxonMobil – are included in the S&P Global ESG Index. (Those are not all of the problematic companies that are included.)

*ESG: Environment, social and governance
 
Did you know that investment grade bond funds can have up to 20% junk bonds in them? Poor credit quality, alongside duration risk, are responsible for the losses in many bond funds – something we’ve been warning about at our Financial Freedom Retreats since 2010.

The losses of the Pimco BOND fund over the last 5 years is representative of a lot of bond funds (something we've been underweighting for over a decade). Source: Money.MSN.com. (c) Microsoft. Used with permission. 11.16.2024.

Undercapitalized Fund Companies 
In our employer-based plan and in the AI-designed portfolio, we are offered very few choices. Some of the fund companies might not be well-capitalized. In today’s world of so much debt and leverage, particularly in financial services, it’s important to make sure that we are purchasing our funds from well-established companies with high credit ratings. Yes, there is an SIPC fund that will try to recover our money in the event of a problem. However, that fund is fairly small, and the process of recovery could be long, arduous and painful. Best to try to avoid that – particularly as we have seen problems with smaller, undercapitalized fund companies, such as MF Global, Direxion and others.
 
 
Bottom Line 
Computers are only as good as the people who program them. The industry itself has certain challenges that we should be aware of, including:
 

• A rather cavalier attitude toward their clients’ “paper losses,”
• Continued misuse of labels such as “value” when stocks are at all-time highs,
• ESG labels when the companies are the worst polluters, and,
• Identifying fixed income products as “safe” that have lost investors up to ¼ of their wealth.

 
Some of us are aware of these issues now, while others might be relying on the headlines that stocks are high, thinking that all is going great with their plan.
 
As Warren Buffett always says, “Only when the tide goes out do you learn who has been swimming naked.” With stocks hitting new highs regularly for the past two years, all plans, even faulty ones, look pretty good (with the exception of conservative plans, many of which lost money due to the weakness in long-term bonds). However, it’s important to never confuse a bull market with wisdom, and to always fix the roof while the sun is still shining. When we wait for the economic storms to hit, it’s too late to protect our wealth. We have to clean up the mess and rebuild. (It took the NASDAQ Composite Index 15 years to crawl back to even after the Dot Com Recession.) So now is the perfect time to dig into the details of our wealth plan, to be the boss of our money, and not just place our future in the hands of robots, AI or broker-salesmen.
 
Self-directed investing is actually as easy as picking 10 well-diversified funds and always keeping a percent equal to your age safe. This system, with 1-3 times a year rebalancing, is time-proven since 1999. It earned gains in the Dot Com and Great Recessions and outperformed the bull markets in between.
 
Learning the life math that we all should’ve received in high school is as important as getting a career. If we simply deposit 10% of our income into tax-protected retirement accounts and that earns a 10% gain, we’ll have more money than we make in 7.5 years and our money makes more than we do in 25 years. This is the secret to financial freedom, and it doesn’t take a genius or a robot to achieve it.

Join us at our online New Year, New Me Financial Freedom Retreat Jan. 10-12, 2025 (online) and our Rebalancing Masterclass (Capture Gains & Protect Principal) on Jan. 18, 2025.

Learn how to:

* Invest in hot industries, such as Nvidia and artificial intelligence,
* Hedge against a weaker dollar,
* Invest and compound your gains,
* Green your retirement plan,
* Easy and efficacious nest egg strategies,
* Get hot and diversified (including in artificial intelligence and EVs),
* Evaluate stocks,
* Keep an age-appropriate amount safe, and,
* Know what's safe in a Debt World.

You'll even discover how to save thousands annually with smarter big-ticket choices. Yes, it's a complete money makeover. 
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Email [email protected] or call 310-430-2397 to learn more and register. Learn the 15+ things you'll master and read testimonials in the flyer on the home page at NataliePace.com. Register with friends and family to receive the best price. ​

"Ten minutes into the first day I was already much smarter about investing than I ever thought I would be in my life and I knew I was in exactly the right place at this retreat. I am amazed at how EASY and FUN it is to make my money work for me and those I love. I think this kind of information should be compulsory in schools. I wish I'd learned this sooner." CM

If you’d like an unbiased 2nd opinion on your current wealth plan, email [email protected] for pricing and information.

Join us for our Online New Year, New You Financial Freedom Retreat Jan. 10-12, 2025. Email [email protected] or call 310-430-2397 to learn more. Register with friends and family to receive the best price. Click for testimonials, pricing, hours & details.

Join us for our Restormel Royal Immersive Adventure Retreat. March 7-14, 2025. Email [email protected] to learn more. Click for testimonials, pricing, hours & details. There is very limited availability. Register now to ensure that you get the exact room you want. This retreat includes an all-access pass to all of our online training for a full year for two, and three 50-minute private, prosperity coaching sessions. Much more affordable than you might think. Email [email protected] to learn more.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.