Can state-of-the-art artificial intelligence (AI) applications such as GPT-4, trained on the text of billions of web documents, provide sound financial advice? In their June 2023 paper entitled "Using GPT-4 for Financial Advice", Christian Fieberg, Lars Hornuf and David Streich test the ability of GPT-4 to provide suitable portfolio allocations for four investor profiles: 30 years old with a 40-year investment horizon, with either high or low risk tolerance; and, 60 years old with a 5-year investment horizon, with either high or low risk tolerance. As benchmarks, they obtain portfolio allocations for identical investor profiles from the robo-advisor of an established U.S.-based financial advisory firm. Recommended portfolios include domestic (U.S.), non-U.S. developed and emerging markets stocks and fixed income, alternative assets (such as real estate and commodities) and cash. To quantify portfolio performance, they calculate average monthly gross return, monthly return volatility and annualized gross Sharpe ratios for all portfolios. Using GPT-4 and robo-advisor recommendations and monthly returns for recommended assets during December 2016 through May 2023 (limited by availability of data for all recommended assets), they find that:
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