Using AI for investing: What you need to know before you start

AI's growing role in personal finance 

Many of us are already using AI without realising it. Your banking app might use AI to detect fraud or categorise transactions. Investment platforms use algorithms to suggest portfolio allocations.  

We're also seeing more retail investors turn to publicly available AI chatbots to help with investment decisions. For example, they might use the chatbots to help with their research on investments by: 

• Summarising annual reports or fund fact sheets 

• Explaining key features and risks of financial products  

• Comparing different investment options 

These AI tools can quickly process information, explain financial terms, and even suggest investment strategies. It's tempting to rely on them - they're free, available 24/7, and seem to have answers for everything. 

But here's what you need to know: while these uses seem harmless, they come with significant risks. 

The benefits and serious limitations of AI investment tools 

What AI does well 

AI excels at processing large amounts of information quickly. It can help you understand basic concepts, compare product features, or create simple budgets. For busy Singaporeans juggling work and family, AI tools offer convenient access to financial information. 

Financial institutions are using AI for legitimate purposes like fraud detection and improving customer service. Some are exploring AI for internal productivity support, such as document processing and code generation. 

Where AI falls short 

Outdated information: Most publicly available AI chatbots aren't updated with current market conditions, interest rates, or regulatory changes. In Singapore's fast-moving financial landscape, this means you might get advice based on old CPF contribution rates, outdated MAS regulations, or incorrect product fees. 

Hallucination risk: AI can confidently provide wrong information about financial products. Regulatory research shows that AI systems can generate "fundamentally incorrect outputs (hallucinations, confabulations) that are convincing but inaccurate or unsuitable." It might incorrectly explain how certain bonds work, misstate the risks of investment-linked policies, or provide inaccurate details about requirements for loans. 

Limited personal assessment: Unlike a qualified financial adviser who conducts a Financial Needs Analysis, AI cannot properly assess your complete financial picture. It does not know your actual income, existing debts, family obligations, or risk tolerance. Publicly available AI chatbots provide generic information that doesn't account for someone's specific needs or constraints. 

Model bias and data quality issues: AI systems can produce biased outputs due to poor training data or algorithmic bias. This could lead to unfair treatment of certain groups of investors, bias toward certain investment types, or conflicts of interest that favour the AI provider's interests over yours. 

Zero consumer protection: This is crucial - AI tools are not regulated and have no obligation to act in your best interests. If you lose money following AI-generated advice, you have no recourse. There are no complaints process, no compensation scheme, and no professional standards to fall back on. 

Emerging risks you should know about

Cybersecurity and fraud risks 

Bad actors are increasingly using AI to create more sophisticated scams. They can generate fake investment opportunities, create deepfake videos of supposed financial experts, or develop convincing phishing schemes. AI-powered fraud is becoming harder to detect and more personalised to individual victims. 

Market manipulation concerns

AI systems can be used to spread misinformation or manipulate market sentiment through fake news, social media posts, or fraudulent research reports. This could affect the prices of investments you're considering. 

Concentration risks 

Many AI systems rely on the same underlying models and data sources. Investors may think they are getting independent advice when consulting different AI tools, but they are actually receiving variations of the same potentially problematic guidance. 

Making smart choices when using AI for finance 

Use AI as a starting point, not the final word 

Think of AI as a research assistant, not a financial adviser. Use it to: 

• Get basic explanations of financial concepts 

• Summarise key points from official documents 

• Generate questions to ask a real adviser 

• Create initial budget frameworks 

Always verify information 

Cross-check any AI-generated information with official sources: 

• MAS website for regulatory requirements 

• CPF Board for retirement planning  

• MoneySense for unbiased financial education 

• Product providers for current fees and terms 

Protect your privacy 

When using AI tools for financial planning: 

• Don't input sensitive personal information like banking account details, or exact income figures 

• Check the AI platform's privacy policy and understand how your data might be used 

• Consider using hypothetical examples rather than your real financial situation 

• Be aware that your conversations with AI tools might be stored and used to train future models 

Understand the limitations 

Remember that AI systems: 

• May not adapt to rapidly changing market conditions 

• Produce probabilistic rather than deterministic results 

• May not perform as intended during market stress or unexpected events 

Know when to seek human advice 

You should consult a qualified financial adviser when: 

• Making major financial or investment decisions 

• Buying insurance or investment products that should be tailored to your specific circumstances and risk profile 

• Dealing with complex financial situations like inheritance or business ownership 

Action steps 

1. Set boundaries: Decide what financial tasks you're comfortable using AI for and which require human expertise 

2. Verify everything: Always check AI-generated information against official sources before making decisions 

3. Protect your data: Review privacy settings and avoid sharing sensitive financial information with AI tools 

4. Find qualified help: Identify licensed financial advisers through MAS’ Financial Institution Representatives Register (FIRR) when you need personalised advice 

5. Stay informed: Keep up with MoneySense resources to build your own financial knowledge alongside any AI assistance 

6. Be skeptical: If an AI-generated investment opportunity sounds too good to be true, it probably is