Wired for wealth: why machines could be better wealth managers than humans

Advancements in machine learning mean that data-driven individualisation is now being incorporated into every aspect of our lives


Ten years ago, it was hard to imagine virtual assistants like Apple’s Siri, Amazon’s Alexa or Microsoft’s Cortana making restaurant reservations, compiling shopping lists and reading you bedtime stories. Now, it’s hard to imagine a world without them. The evolution of artificial intelligence and machine learning has created a dramatic shift towards digital platforms, enabling machines to perform human roles with greater speed, precision and efficiency. And there’s no limit to their potential: advancements in machine learning mean that data-driven individualisation is now being incorporated into every aspect of our lives, from ordering room service from robots, to even helping us reach our long-term investment goals.

It’s hardly surprising that the rapid development of such technologies has been regarded as a threat by humans wary of being made redundant by cost-cutting, better-performing machines. Last year management consultancy Opimas predicted that AI technologies would drive the loss of 230,000 jobs in the capital markets by 2025, with 30,000 new jobs being created for technology and data providers who could meet the financial industry’s new demands. Like it or not, no fund manager can make millions of calculations in a split second, day after day – or guarantee a positive outcome to your investments.

But by analysing the masses of financial data that exists, data scientists can program algorithms to finely tune your investments, personalising your portfolio to reflect your attitude towards risk, your retirement plans, and even your preferred countries, sectors and themes. And while they won’t ever be able to guarantee success, they can at least minimise risk at the right time.

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In truth, our brains are not designed for investing. Human emotion drives our decisions, making us our own worst enemies. The field of behavioural finance identifies a number of common cognitive biases that serve us well on a daily basis, but are detrimental when it comes to the detached, long-term perspective required for successful investing. For example, the gift of hindsight: often we remember only the things we predicted correctly, conveniently forgetting those we got wrong. It’s important to consider the investments you didn’t make when they now seem like such obvious opportunities. Then there’s loss aversion: no one likes to lose, and research has shown that the pain of loss is twice as great as the pleasure of a comparable gain, which can make for an inactive, overly risk-averse investor. Unfortunately fund managers aren’t immune to these biases and suffer from them just as much as an ordinary investor, often making the wrong decisions triggered by fear, greed and panic.

The shift towards data-driven investing will only further reduce the need for fund managers as machines take the emotion out of investing, and platforms become easier and cheaper to use, sparking a revolution in the way we invest. Exo Investing firmly believes that a mathematical model can perform better than a human in managing a portfolio’s risk. While the investor remains in charge, making the high-level strategic decisions, a machine implements them in the role of an investment co-pilot, eliminating the investor’s day-to-day contact with the markets that can result in major investment mistakes.

By using a combination of mathematical formulas, Exo’s machine learning algorithms look at recent market activity – as well as historic and future market scenarios – and identify the optimum portfolio positioning for that moment. As soon as there are indicators of a negative market environment, each portfolio is adapted to reduce risk when there’s a higher probability of loss, thereby improving the overall odds of you reaching your personal investment goals. And instead of looking at your portfolio once a quarter, or once a year, Exo continuously scours the Exchange Traded Funds listed on the London Stock Exchange to select the optimal ones to populate each individual portfolio, based on quantitative and qualitative factors, and the fund allocations are re-analysed every day.

In the past, this kind of risk management technology was reserved for ultra high-net-worth individuals only, but Exo has thrown open the door to ordinary investors, taking the emotion out of investment and breaking down the barriers to wealth.

Visit exoinvesting.com

When investing, your capital is at risk. The value of your investments can go down as well as up, so you could get back less than you invested. © Exo Investing is a trading name of Finhub Technologies Ltd. which is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 748161).