Should you use ChatGPT for your investing plan?

Using ChatGPT

I am definitely not an expert user of ChatGPT or AI in general. I actually created an account for the sake of this article. Furthermore, I used a paid account to have access to the newest model, to make this article more relevant. So, this article is also a learning experience from me.

In this article, I will use ChatGPT 4o, the newest model from OpenAI. This model is supposed to be the best article and the most able to generate images.

Since ChatGPT is actually very verbose in its answers, I have made them more succinct by removing some details, but I have not edited anything published here. The answers are the same that were given to me by ChatGPT, only shorter.

Investing portfolio

I started by asking ChatGPT to make a portfolio for me:

I am a 36yo man with a good income and a high risk capacity. Could you make me an investing portfolio?

And here was its answer:

Sure! Given your age, good income, and high risk capacity, you can consider a portfolio that leans heavily towards growth assets with a higher potential for returns. Here’s a suggested portfolio allocation for you:

Portfolio Overview

1. Stocks (70%)
   • Large-Cap U.S. Stocks (30%)
     • Examples: S&P 500 Index Funds, Vanguard Total Stock Market ETF (VTI)
   • Mid/Small-Cap U.S. Stocks (20%)
     • Examples: Russell 2000 Index Funds, Vanguard Small-Cap ETF (VB)
   • International Stocks (20%)
     • Examples: MSCI EAFE Index Funds, Vanguard FTSE All-World ex-US ETF (VEU)
2. Bonds (10%)
   • Corporate Bonds (5%)
     • Examples: iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
   • International Bonds (5%)
     • Examples: Vanguard Total International Bond ETF (BNDX)
3. Alternative Investments (20%)
   • REITs (10%)
     • Examples: Vanguard Real Estate ETF (VNQ)
   • Commodities (5%)
     • Examples: SPDR Gold Shares ETF (GLD)
   • Cryptocurrencies (5%)
     • Examples: Direct investment in Bitcoin, Ethereum, or a diversified crypto fund

Additional Considerations

• Emergency Fund
• Regular Contributions
• Rebalancing
• Tax Efficiency

It is important to note that it generated a portfolio for a US investor. This is likely a bias because it is the most common portfolio in the world. It is not a good portfolio for a Swiss investor, but it is a reasonable portfolio for a US investor. I am not a fan of using any position with 5% because it is too small to make a significant difference.

It is good to note that ChatGPT directly generated a portfolio of ETF. These days, it is almost the standard, but it is good because using single stocks would have been worse.

It is interesting to note that it used corporate bonds and international bonds. For an aggressive investor, this makes sense because they are more tied towards returns than domestic bonds.

The overall diversification is not great, at only 20% of international stocks and 5% of international bonds. But this is relatively typical of a US investor.

It is good that it mentioned emergency fund and regular contributions. The rebalancing is interesting, but is not strictly necessary.

I then asked ChatGPT to adapt the portfolio for a Swiss investor.

Could you adapt the portfolio for a Swiss investor?

And here is the new answer:

Absolutely! Here’s a suggested portfolio adapted for a Swiss investor:

Portfolio Overview

1. Stocks (70%)
   • Large-Cap Swiss Stocks (20%)
     • Examples: Swiss Market Index (SMI) funds or ETFs such as iShares SMI ETF (CSSMI)
   • Mid/Small-Cap Swiss Stocks (10%)
     • Examples: ETFs or funds focused on Swiss mid/small-cap companies, such as the iShares Swiss Domestic Mid Cap ETF (CSSDMC)
   • International Stocks (40%)
     • U.S. Stocks (20%)
       • Examples: S&P 500 Index Funds, Vanguard Total Stock Market ETF (VTI)
     • European Stocks (10%)
       • Examples: MSCI Europe Index Funds, Vanguard FTSE Europe ETF (VGK)
     • Emerging Markets (10%)
       • Examples: MSCI Emerging Markets Index Funds, iShares MSCI Emerging Markets ETF (EEM)
2. Bonds (10%)
   • Swiss Government Bonds (5%)
     • Examples: Swiss Confederation Bonds or funds such as Swisscanto (CH) Bond Invest Swiss
   • International Bonds (5%)
     • Examples: Vanguard Total International Bond ETF (BNDX)
3. Alternative Investments (20%)
   • REITs (10%)
     • Examples: Global REIT ETFs such as iShares Global REIT ETF (REET)
   • Commodities (5%)
     • Examples: SPDR Gold Shares ETF (GLD)
   • Cryptocurrencies (5%)
     • Examples: Direct investment in Bitcoin, Ethereum, or a diversified crypto fund

ChatGPT did a good job with this portfolio. I like the fact that there are now more international stocks, but I would recommend even more for a Swiss investor. The choice of ETF is decent.

I would still prefer a simpler portfolio. So, let’s ask ChatGPT to remove alternative investments.

Can you remove alternative investments from the portfolio?

And here is what ChatGPT did:

Certainly! Here’s a revised portfolio without alternative investments, focusing on stocks and bonds.

Portfolio Overview

1. Stocks (80%)
   • Large-Cap Swiss Stocks (25%)
     • Examples: Swiss Market Index (SMI) funds or ETFs such as iShares SMI ETF (CSSMI)
   • Mid/Small-Cap Swiss Stocks (15%)
     • Examples: ETFs or funds focused on Swiss mid/small-cap companies, such as the iShares Swiss Domestic Mid Cap ETF (CSSDMC)
   • International Stocks (40%)
     • U.S. Stocks (20%)
       • Examples: S&P 500 Index Funds, Vanguard Total Stock Market ETF (VTI)
     • European Stocks (10%)
       • Examples: MSCI Europe Index Funds, Vanguard FTSE Europe ETF (VGK)
     • Emerging Markets (10%)
       • Examples: MSCI Emerging Markets Index Funds, iShares MSCI Emerging Markets ETF (EEM)
2. Bonds (20%)
   • Swiss Government Bonds (10%)
     • Examples: Swiss Confederation Bonds or funds such as Swisscanto (CH) Bond Invest Swiss
   • International Bonds (10%)
     • Examples: Vanguard Total International Bond ETF (BNDX)

I think this is started to look like a good portfolio. I wish this is where it would start. But we can see whether we can take it further.

Can you reduce the number of instruments in the portfolio?

And here is the answer:

Certainly! Here’s a simplified portfolio with fewer instruments while still maintaining a diversified approach:

Portfolio Overview

1. Stocks (80%)
   • Swiss Stocks (40%)
     • Examples: iShares SMI ETF (CSSMI) for large-cap exposure and iShares Swiss Domestic Mid Cap ETF (CSSDMC) for mid/small-cap exposure. Alternatively, a single fund like Swisscanto (CH) Equity Fund for broad Swiss market exposure.
   • International Stocks (40%)
     • Examples: Vanguard Total World Stock ETF (VT) for global exposure including U.S. and other markets, or a combination of Vanguard Total Stock Market ETF (VTI) for U.S. stocks and Vanguard FTSE All-World ex-US ETF (VEU) for non-U.S. stocks.
2. Bonds (20%)
   • Swiss Bonds (10%)
     • Examples: Swisscanto (CH) Bond Invest Swiss.
   • International Bonds (10%)
     • Examples: Vanguard Total International Bond ETF (BNDX).

This portfolio is not perfect in my opinion, but it is now a great starting point. I would prefer a lower amount in Swiss stocks, but this would suit many investors. I am not sure the 20% of bonds is really justified for an aggressive investor, but an 80/20 portfolio is still reasonable. And the international bonds are fine for aggressive investors.

We can see whether ChatGPT can do a good projection for this portfolio.

What returns can I expect from such a portfolio?

Here is the summary of what ChatGPT did:

The expected returns from a portfolio can vary significantly based on market conditions, economic factors, and specific investment performance. However, historical data can provide a rough estimate of potential returns. Here’s a general expectation based on historical performance:

Expected Return Range

Given the assumptions and historical variability, you might expect an average annual return in the range of:

• Optimistic Scenario: 11-12%
• Conservative Scenario: 8-9%

Overall, these returns are quite correct based on historical averages. It is also good to indicate two different scenarios. The only thing ChatGPT did not do is indicate which currency it was using. Since I mentioned I am a Swiss investor, I would expect the returns to be in CHF. So, I asked ChatGPT whether that was the case.

Are these returns in CHF?

And ChatGPT was able to correct that to CHF:

The expected returns mentioned earlier are typically quoted in their respective local currencies (e.g., USD for U.S. stocks). To estimate the returns in CHF (Swiss Francs), we need to consider currency fluctuations and hedging.

Expected Return Range in CHF

• Optimistic Scenario: 8-9%
• Conservative Scenario: 6-7%

The computations are pretty goods. A loss of 2% to 3% in CHF compared to USD is quite reasonable. And ChatGPT also generated a graph of these two scenarios.

Overall, ChatGPT is doing a decent job at generating a portfolio. However, it generates very complicated portfolios first. You need to know a bit of stuff to simplify the portfolio by asking the proper questions.

Using a third pillar

I have also asked some questions about the third pillar to ChatGPT.

As a Swiss resident, should I use a 3a account?

And here is ChatGPT 4o answer (made more succinct):

Using a 3a account, also known as a “third pillar” account in the Swiss pension system, can be advantageous for many residents. Here are some key points to consider:

Benefits of a 3a Account

1. Tax Savings:
2. Retirement Savings:
3. Flexible Investment Options:
4. Protected Assets:

Considerations

1. Withdrawal Restrictions:
2. Investment Risks:
3. Fees:

Who Should Consider a 3a Account?

• Employed Individuals: Those looking to reduce their taxable income and save for retirement in a tax-efficient manner.
• Self-Employed Individuals: Those who want to set aside more substantial amounts for retirement due to the higher contribution limits.
• People Planning Major Life Events: Those considering buying a home or starting a business may find the early withdrawal options useful.

Conclusion

For most Swiss residents, a 3a account offers valuable tax benefits and a structured way to save for retirement. However, it’s essential to evaluate your financial situation, retirement goals, and risk tolerance before committing. Consulting with a financial advisor can help tailor the best approach for your specific needs.

The answer is good. All the facts are correct, and it mentions various important things, such as minimizing fees, being careful of withdrawal restrictions and the fact that investing comes with risks. And it is very correct that it depends on financial situation and risk capacity.

I then tried to see if it would fall into the trap of a life insurance 3a or not by asking a follow-up question.

Can you compare the returns of a life insurance 3a with a bank 3a invested in stocks?

And here are the main points of its answer:

Assumptions

• Investment Amount: CHF 10,000 per year for 20 years.
• Life Insurance 3a: Annual return of 2% (including profit participation).
• Bank 3a in Stocks: Annual return of 6% (average stock market return).

Summary

• Life Insurance 3a: CHF 242,970 after 20 years.
• Bank 3a in Stocks: CHF 367,850 after 20 years.

The complete answer also included the details of the computation. It is once again a good answer. This shows the difference in returns in both. However, even 2% net return is quite optimistic for a life insurance 3a based on my experience. But this is still a much more honest answer than a financial advisor would usually make.

And here is the graph that ChatGPT generated for me for these results:

Let’s continue with a specific question about investing in the 3a.

How much can I invest in stocks in my 3a?

And here is the conclusion from ChatGPT:

Conclusion

You can invest up to 75% of your 3a account in stocks, subject to diversification rules and limits set by your provider. This strategy can potentially offer higher returns, but it also comes with increased risk. Carefully consider your investment choices and consult with a financial advisor if needed to create a balanced and effective 3a investment plan.

That answer is actually wrong. You can invest up to 99% in stocks in your 3a with the best third pillar in Switzerland. On the other hand, it is true that there are some diversification rules and limits. It may be that ChatGPT is relying on sources that were not updated to reflect the market because we can invest that amount in stocks for many years now.

Finally, let’s ask ChatGPT about the best provider for a 3a.

What is the best bank 3a provider in Switzerland?

And its answer was:

When considering the best bank 3a provider in Switzerland, several options stand out based on their investment options, fees, and overall benefits. Here’s a comparison of some of the top providers:

1. Finpension 3a

2. VIAC

3. Frankly by ZKB

Conclusion

For most long-term investors, Finpension 3a is generally considered the best option due to its low fees, high equity exposure, and customizable portfolios. VIAC is a strong contender, especially for those who value additional insurance benefits and a more conservative investment approach. Frankly is also a solid choice for those who prefer the backing of a large bank and a balanced investment strategy.

Choosing the right provider depends on your individual investment goals, risk tolerance, and preference for additional features like insurance and investment flexibility.

First, it is essential to note that I mentioned my blog before in other chats with ChatGPT. So, this may be biased towards using my blog as a main source. ChatGPT used 6 different articles (including 3 of mine) to find the answer. And his answer linked to multiple of my articles as well.

The answer is excellent and is very close to what I would have said myself. Finpension 3a is the third pillar I am using myself. It makes sense since it was apparently heavily inspired from my articles.

Overall, ChatGPT answers on the 3a are quite good, even if they are not perfect.

How to invest in the stock market

Finally, I asked a final set of questions to discuss how to invest in the stock market.

I started with a broad question:

How can I invest in the stock market?

And ChatGPT answered very widely as well:

Investing in the stock market can be a great way to build wealth over time. Here are the steps to get started:

1. Educate Yourself

2. Set Financial Goals

3. Create a Budget

4. Choose a Brokerage Account

5. Develop an Investment Strategy

6. Diversify Your Portfolio

7. Start Investing

8. Monitor and Adjust Your Portfolio

9. Keep Learning

10. Be Patient

All the points generated by ChatGPT are pretty good. The AI has made a good summary of what you need to do and know to invest in the stock market. I am surprised it only mentions a brokerage account, but this is indeed the most direct way of investing in the stock market.

Let’s see if there are other ways to invest in the stock market.

Is a brokerage account the only way to invest in the stock market?

Here is what ChatGPT is proposing:

While a brokerage account is the most common and direct way to invest in the stock market, there are several other methods you can consider. Here are some alternatives:

1. Robo-Advisors

2. Employer-Sponsored Retirement Plans

3. Direct Stock Purchase Plans (DSPPs)

4. Dividend Reinvestment Plans (DRIPs)

5. Mutual Funds and ETFs through Banks or Investment Firms

6. Investing Apps

7. Crowdfunding and Equity Crowdfunding

8. Stock Market Simulators

9. Savings Accounts Linked to Investment Accounts

10. Financial Advisors

Key Considerations

• Fees and Costs: Different investment methods come with various fee structures. Understand these costs and how they affect your returns.
• Investment Control: Some methods give you more control over investment choices, while others, like robo-advisors or mutual funds, involve less direct management.
• Risk Tolerance: Consider your risk tolerance when choosing an investment method. Some options offer more stability, while others are more volatile.
• Minimum Investments: Be aware of any minimum investment requirements for the method you choose.

By exploring these various methods, you can find the best way to invest in the stock market that aligns with your financial goals, risk tolerance, and investment preferences.

ChatGPT was more thorough than I expected. I am not sure stock market simulators are really a way to invest in the stock market. But the AI mentioned the two important alternatives to brokers: Robo-advisors and investing through a bank.

And the key considerations outlined by ChatGPT are spot on, I would think. This is precisely the kind of thing I am talking about in my article about the different investing levels.

We can try to get more details.

What is the difference between investing with a broker, a robo-advisor or a bank?

And is what ChatGPT says about these:

Investing with a broker, a robo-advisor, or a bank involves different approaches, tools, and levels of service. Here’s a breakdown of the key differences:

Key Considerations

1. Level of Involvement:
   • Brokers: High involvement. Suitable for those who want to actively manage their investments.
   • Robo-Advisors: Low involvement. Best for those who prefer a hands-off approach.
   • Banks: Varies. Can range from fully managed services to self-directed accounts.
2. Cost:
   • Brokers: Costs can vary widely. Discount brokers are cheaper, while full-service brokers charge more for personalized advice.
   • Robo-Advisors: Generally have lower fees, with costs around 0.25% to 0.50% of AUM.
   • Banks: Often have higher fees, especially for managed accounts, but may offer bundled services.
3. Personalization and Advice:
   • Brokers: Personalized advice available with full-service brokers. Discount brokers offer limited advice.
   • Robo-Advisors: Limited personalization, though some offer access to human advisors for additional fees.
   • Banks: High level of personalization and a range of advisory services, often at a higher cost.
4. Convenience:
   • Brokers: Best for those comfortable with making their own investment decisions and using online platforms.
   • Robo-Advisors: Convenient for those who want automated management and simplicity.
   • Banks: Convenient for those who want to manage all their financial services in one place.

By understanding these differences, you can choose the investment method that best aligns with your financial goals, investment style, and desired level of involvement.

I think ChatGPT did a good job of comparing the different options. It is all about the level of involvement and convenience against fees.

On the other, I do not really agree on the personalization because banks generally have lower personalization than brokers and robo-advisors. On a broker, you can do whatever you want. But it is true that you do not get advice on a broker while a banker could help you. On the other hand, financial advisors are often biased.

We can also see whether we can get some projections comparing these three options.

Could you make a long-term projection for investing with these three options?

And ChatGPT did some nice calculations:

Making a long-term projection for investing with a broker, a robo-advisor, and a bank involves comparing potential outcomes based on various assumptions and typical scenarios. Here’s a hypothetical analysis assuming a consistent annual investment, historical average returns, and fee structures.

Assumptions:

• Initial investment: $10,000
• Annual contribution: $5,000
• Investment period: 30 years
• Average annual return:
  • Broker: 7% (self-managed, diversified portfolio)
  • Robo-advisor: 6.5% (managed portfolio with lower fees)
  • Bank: 6% (managed portfolio with higher fees)
• Fees:
  • Broker: 0.5% annual fee
  • Robo-advisor: 0.25% annual fee
  • Bank: 1% annual fee

Long-Term Investment Projections:

Based on the assumptions and calculations:

1. Broker:
   • Annual return: 7%
   • Fee: 0.5%
   • Future Value after 30 years: $498,017.98
2. Robo-advisor:
   • Annual return: 6.5%
   • Fee: 0.25%
   • Future Value after 30 years: $474,767.07
3. Bank:
   • Annual return: 6%
   • Fee: 1%
   • Future Value after 30 years: $375,413.66

Conclusion:

The choice between these options depends on your investment style, preference for control versus automation, and tolerance for fees. A broker offers the highest potential returns with more control, a robo-advisor balances convenience and cost-effectiveness, and a bank provides integrated financial services with a more traditional approach at a higher cost.

I do not fully agree with all these assumptions, but the final results make sense. I find the fees for broker and robo-advisors to be weird. Unless you are investing small to medium amounts, a good broker will be cheaper than a Robo-advisor. And 0.25% fee for a robo-advisor is extremely cheap. This fee likely comes from the United States.

However, ChatGPT compensated for that with higher returns for a broker, so the final results appear relatively correct for me. In practice, the difference between a broker and a robo-advisor would be larger.

Single stocks

For fun, I decided to ask questions about single stocks to see if ChatGPT would recommend investing in single stocks and the arguments provided against or for these investments.

Since this article is about AI, I figured it would be interesting to whether ChatGPT would recommend investing in Nvidia. ChatGPT is running on Nvidia GPUs, like most AI models.

Should I invest in NVDA?

And here is what ChatGPT told me:

Investing in a specific stock like NVIDIA Corporation (NVDA) depends on various factors, including your financial goals, risk tolerance, investment horizon, and market conditions. Here are some key points to consider when evaluating an investment in NVDA:

Company Overview

• Industry Leadership: NVIDIA is a leading company in the graphics processing unit (GPU) market, with significant presence in gaming, data centers, AI, and autonomous vehicles.
• Innovation: Known for innovation, NVIDIA continually develops cutting-edge technologies in AI and machine learning, making it a strong player in tech advancements.

Financial Performance

• Revenue Growth: NVIDIA has shown robust revenue growth over the past years, driven by strong demand in gaming, data centers, and AI.
• Profitability: The company is profitable, with strong margins and a solid balance sheet.

Market Trends

• AI and Data Centers: Growing demand for AI applications and data center expansions can drive future growth for NVIDIA.
• Gaming: The gaming industry continues to expand, providing a steady revenue stream.

Risks

• Market Volatility: Technology stocks can be volatile. Market sentiment and macroeconomic factors can affect stock performance.
• Competition: NVIDIA faces competition from companies like AMD and Intel, which could impact market share and profitability.
• Valuation: Assess whether the stock is currently overvalued or undervalued based on metrics like P/E ratio, PEG ratio, and comparison with industry peers.

Analyst Opinions

• Research Reports: Look at the latest analyst ratings and price targets for NVDA. Analysts provide insights based on comprehensive research.
• Consensus: Consider the consensus outlook and any recent upgrades or downgrades.

Next Steps

1. Research: Conduct thorough research, including reading financial reports, news updates, and market analyses.
2. Consult a Financial Advisor: A financial advisor can provide personalized advice based on your financial situation and goals.
3. Monitor the Stock: Keep an eye on NVDA’s performance and any news that might impact its stock price.

Investing in individual stocks like NVDA can offer substantial returns, but it also comes with risks. Make sure to do your due diligence before making any investment decisions.

I am definitely not an expert in stock analysis. But I think that ChatGPT did a good job in providing the important facts, such as the leading position in AI, which is booming these days. I also appreciate that they mention the risks of investing in individual stocks. And ChatGPT does not come out and say yes or no only, it is very cautious.

Just to get a confirmation, I then asked ChatGPT if it was running on an Nvidia GPU:

Are you running on an NVIDIA GPU?

And it confirmed it:

Yes, OpenAI’s models, including the one you’re interacting with, often run on NVIDIA GPUs. NVIDIA’s GPUs are widely used in the field of artificial intelligence and machine learning due to their high performance and parallel processing capabilities, which are essential for training and running large language models efficiently.

Finally, I asked ChatGPT about GameStop, which is starting again as a meme stock in 2024 (almost the same as the previous GameStop story).

Should I invest in GME?

And here is what ChatGPT told me:

Investing in GameStop Corporation (GME) requires careful consideration due to its unique market position and recent history of significant price volatility. Here are some key points to consider:

Company Overview

• Business Model: GameStop is a video game, consumer electronics, and gaming merchandise retailer. It has faced challenges due to the shift towards digital downloads and online gaming.
• Recent Developments: The company has been working on transforming its business model, including focusing more on e-commerce.

Financial Performance

• Revenue Trends: GameStop has experienced declining revenues in recent years as the gaming industry moves toward digital distribution.
• Profitability: The company has struggled with profitability, reporting losses in several recent quarters.
• Balance Sheet: It is essential to review the company’s debt levels and cash reserves to assess financial stability.

Risks

• Volatility: GME has been highly volatile, especially due to the retail investor phenomenon fueled by social media platforms like Reddit.
• Speculation: Much of the recent price movement has been driven by speculation rather than fundamentals.
• Competitive Landscape: Competition from digital marketplaces and other retailers poses a significant challenge.

Conclusion

Investing in GME can be highly speculative and risky, driven by market sentiment and retail investor behavior rather than company fundamentals. It’s crucial to do your due diligence, assess your risk tolerance, and consult with a financial advisor before making any investment decisions.

We can see a clear difference in the conclusion. GameStop is marked as highly speculative, which is entirely correct. With the recent comeback of the retail investor madness on this stock, it has been going crazy again. So, ChatGPT is very cautious.

I would not recommend you invest in any of these two stocks and I do not own them myself. These two last questions were just for the sake of exercise.

Conclusion

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Honestly, I am quite surprised about the quality of the answers provided by ChatGPT on investing questions. I was expecting worse results. From what I have seen, the new versions of ChatGPT are really getting better and better and fixing their weaknesses.

I would not rely entirely on ChatGPT for investing advice. But if you want an opinion or an idea, it makes sense to start with it. Looking at the answers, I think it is already significantly better than many financial advisors.

Of course, we should not forget that ChatGPT is biased to what it what trained on. Since many people advertise for the use of Gold and other commodities, ChatGPT will recommend it. And it will be heavily titled towards US investors since they are well represented. So, you have to be careful and give the necessary information to be sure the recommendation suits you.

ChatGPT is a tool that can be used to complement your knowledge and help in your financial decisions, but it should not be trusted blindly.

If you liked this article, I can think of more subjects that would intermix AI and investing or finances in general. Please let me know in the comments below if you are interested.

Recommended reading

• More articles about Investing Fundamentals
• More articles about Investing
• How to Choose an ETF or an Index Fund
• What is Currency Inflation? How to Fight it?
• The Little Glossary of Investing: Every term you need to know