Part 235

Hello and welcome back to Mortgage Advisor on FIRE.  This week I discuss the impact that AI may have on investing.  Also, an exciting update on my BTL, and a busy week of medical appointments.

Weekly Update

I’ve had a week off work but it’s not proven quite as relaxing as I’d hoped.  Last Sunday I had to go to the hospital for a scan, and then I had medical appointments on Monday, Tuesday, Thursday, and Friday.  

On Monday I had my diabetic eye test where they take photos of the back of your eye to check that the diabetes causes no damage.  I’ll get the results in a couple of weeks.  The last couple of times when I’ve had this test, I’ve barely been able to see for a few hours because of the drops they use.  This time my reaction was much less severe which was a relief.

Tuesday and Friday saw me going for blood tests, but honestly, I’m not completely sure what they’re testing for.  I guess I’ll find out soon.  On Wednesday I had to eat a restricted diet because I had to be at the hospital very early Thursday morning to swallow a pillcam.  I then had to wear this strap and belt which had recording equipment to get data from the pill wirelessly.

I’ve had pillcams a few times and it’s never a pleasant experience.  Normally I’ve had to eat a restricted diet for a day or so ahead of time, and then drink this preparation which, well, I won’t go into detail.  It tastes gross though and often triggers a migraine for me.  I explained all this to the consultant and she explained I could simply fast for 12 hours the day before which was so much better. 

I arrived at the hospital at 8:30 in the morning and swallowed the pill.  Then, they strapped me up with the recording equipment; a bulky belt and a box about the size of a ready meal on which you could view the progress of the camera as it dropped into my stomach.  I then had to walk around for half an hour to try and speed the progress of the camera out of my stomach.  After half an hour, it had still not exited, so I had to do laps of the hospital floor which must have been confusing to the middle-aged couple that I passed every 45 seconds.  

Eventually, I was given the nod to head home.  I had to wear the equipment all day and return at 7pm.  It was extremely uncomfortable.  I was so tired from the lack of food and no caffeine.  I decided to go to bed for the last couple of hours.  By the time I got the equipment off, I felt gross.  I’d not been able to shower all day and the equipment was covering a large portion of my upper body.  I was tired, gross, and ready for a shower.

There seem to be a few different things going on here, with investigations into three different potential problems.  One of them had me worried a little because, well, the symptoms matched up with potentially having cancer.  My mind was eased when the person completing the scan explained it was almost certainly not cancer but the results would be sent back to my GP once they’d been reviewed fully.  

The snooker world championship started this past week, and we’ve been enjoying it as usual.  Although, watching Robert Milkins have a massive tantrum was annoying and funny in equal measure.  Snooker is generally a civilised game but after missing an easy red, Milkins stormed off and threw his cue to the floor.  He ended up losing 13-4 to David Gilbert. 

It’s so cool living in the city that hosts the snooker world championship, and I hope it remains here for the long term.  However, money talks.  I wouldn’t be surprised if there’s a mega-money offer from the Middle East or China to host it.  It would feel like Sheffield lost part of its identity if it left though.

Holidays

We’ve pretty much resigned ourselves to not having a holiday abroad in 2024.  However, we’ve started planning for 2025 and it looks like we’re going on another cruise to, you guessed it, Norway.  It would be our third time cruising to that part of the world and I don’t think it would ever get old.  It’s such a beautiful place, and I’m at home on the sea.  At some point in the future Oana and I would like to do one of those long cruises that last months and take you all around the world.  It would be an amazing experience.  That’s one for a few years down the line though, probably post-FI.

Pension Story

On the stocks app I have on my iPhone it pulls through various financial news items.  One this week focused on people who are not paying into pensions.  It was painful reading.

One person said; “I didn’t want to get in any long-term agreement with anything to do with the Government.”

So, here’s the thing… When you live in a country you are, by default, in an agreement with the government.  It’s unavoidable.  Specifically regarding pensions, if you pay into them and something goes massively wrong then you might not get the benefit you were expecting.  However, for this to happen the world would have to be on fire, fighting off an alien invasion, dealing with a zombie apocalypse, or dealing with 2012 (the film) levels of natural disasters.

Our whole society is based on a particular economic system, and for pensions to fail to that degree it would take the whole system failing.  If you don’t pay into a pension then you are not getting the benefit anyway, and there are two possible outcomes; the world carries on as normal but you are struggling for cash or the world undergoes some massive upheaval.  

There are so many ways in which we are “in agreement” with the government, from laws and taxes to passports and driving licences.   When you live in a country, you are bound by that country’s laws and that is by definition an agreement.  The quote from the news item is just ridiculous.  

Another quote from the story that just made me facepalm;

“I don’t trust what could happen to the economy.”

This comes from someone explaining their decision to throw money into crypto.

On one hand, you have a global, interconnected, economy, and on the other, you have an unregulated mess where the bulk of the “assets” are owned by a small group.  It is in everyone’s interest to make sure the global economy remains relatively stable.  Crypto can play by its own rules for the most part, which can involve massive swings in value.  

Looking Back

I’ve not had a chance to upload a new Looking Back post this week, but you can find the list of previously published ones here.

What am I doing?

TV: MasterChef (BBC); Snooker World Championship (BBC).

Audiobook: Heaven’s River – Bobiverse Book 4 by Dennis E. Taylor.

I’ve really enjoyed the Bobiverse books and I’ve just finished the fourth book in the series.  Book 5 should be out later this year.  I would say that the series is right up there with The Expanse and the Three-Body Problem.  It doesn’t take itself as seriously as the other two series, but it still covers some heavy subjects such as life after death, the concept of self, war, procreation, different forms of government, the soul, quantum physics, and much more.  It’s also full of references to other sci-fi which I loved.  

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Financial Update

Assets

Premium Bonds: £13,325.00. 

Stocks and Shares ISA: £71,673.57. 

Fuck It Fund: £11.10.

Pensions: £75,607.81. 

Residential Property Value: £229,818.00. 

BTL Property Value: £148,301.00.

Total Assets: £538,736.48.

Debts

Residential Mortgage: £172,638.93. 

BTL Mortgage: £104,885.22.

Total Debts: £277,524.15. 

Total Wealth: £261,212.33.

Investment Income in 2023: £2,174.04 (target £10,000).

BTL Update

We have received an offer for the BTL.  It’s a little lower than hoped for, but still good enough to be acceptable.  The people making the offer are first-time buyers and, as such, are not involved in a chain.  If this could all be done and dusted by the summer I would be delighted.

Assuming the sale goes through and my projections for things like CGT are correct, then I should walk away with a decent amount of cash.  It will not quite be a heavy profit, but at present, the property is costing us money.  

Total Wealth

I’ve hit a new high for my total wealth figure; a milestone that has quietly crept up on me.  It’s always nice when you hit these targets and it puts a spring in your step.  The next goal is to get to £80,000 in my ISA and pensions, and then £100,000.  Barring any disaster I should easily hit the £80k figure in both the ISA and pension before the end of 2024, but £100,000 may be a bridge too far for this year.

AI and Financial Advice

There’s a lot of talk about the impact that AI is having and is going to have, on our society going forward.  I think it’s an exciting time and AI has the potential to improve our lives hugely.  This can be through improved medical research, advances in computing technology, clean energy, and much more.  Another area it will impact is finance, and financial advice specifically. 

For most people, financial advice is pretty basic.  It’s a question of inputting the relevant variables and getting an answer.  In many cases it can be boiled down to a flow chart; if X then Y.  I don’t think we are that far away from AI influencing, or even controlling, the investing behaviour of much of the population.  

There will always be a need for the human touch, especially where emotions are involved.  It might also be the case that more complex situations require a trained professional to untangle the various factors and offer advice that achieves the required objectives whilst taking into consideration the feelings of the investor. 

Either way, I can see a lot of customer-facing jobs in finance becoming obsolete as AI develops and can offer advice for most people, most of the time.

We’re not quite there yet…

For a bit of fun, I decided to approach ChatGPT with some investing-related questions.  Below is the transcript, which I’ve trimmed a little for ease of reading. Also, I’ve added some notes within the transcript which I’ve highlighted:

As a UK investor, what should I invest in first?

As a UK investor, you have a variety of investment options available to you. Here are some popular choices to consider as you begin your investment journey:

1. **Individual Savings Accounts (ISAs)**: ISAs are tax-advantaged accounts that allow you to invest up to a certain amount each tax year without paying tax on the returns. There are several types of ISAs, including cash ISAs, stocks and shares ISAs, innovative finance ISAs, and Lifetime ISAs. A stocks and shares ISA is particularly popular for long-term investing as it allows you to invest in a wide range of assets, including stocks, bonds, and funds, without paying capital gains tax or income tax on the returns.

2. **Pension Accounts**: Contributing to a pension account, such as a workplace pension or a self-invested personal pension (SIPP), is another tax-efficient way to invest for retirement. Contributions to pensions receive tax relief, and any returns generated within the pension account are typically tax-free until withdrawn.

3. **Stocks and Shares**: Investing in individual stocks and shares can provide the potential for high returns, but it also comes with higher risk compared to other investment options. You can buy shares directly through a stockbroker or invest indirectly through funds such as unit trusts, open-ended investment companies (OEICs), or investment trusts.

4. **Exchange-Traded Funds (ETFs)**: ETFs are investment funds that trade on stock exchanges and aim to replicate the performance of a specific index, sector, commodity, or asset class. ETFs offer diversification and typically have lower fees compared to actively managed funds.

Before making any investment decisions, it’s essential to consider your investment goals, time horizon, risk tolerance, and personal financial situation. Additionally, conducting thorough research and, if necessary, seeking advice from a financial advisor can help you make informed investment choices that align with your objectives.

So, no real advice here.  Just a summary of some of the available investment options.  I tried again with a follow-up question…

Specifically, which of those options is the best?

Determining the “best” investment option depends on various factors, including your financial goals, risk tolerance, time horizon, and personal circumstances. Each investment option has its advantages and considerations. Here’s a brief overview of the pros and cons of each option:

1. **Individual Savings Accounts (ISAs)**:

   – Pros: Tax-efficient, flexible, wide range of investment choices (stocks and shares ISAs), no tax on returns.

   – Cons: Contribution limits, may not offer the potential for high returns compared to riskier investments.

2. **Pension Accounts**:

   – Pros: Tax relief on contributions, tax-free growth within the pension, automatic enrollment in workplace pensions for many employees.

   – Cons: Access to funds restricted until retirement age, potential changes in pension regulations, contribution limits.

3. **Stocks and Shares**:

   – Pros: Potential for high returns, wide range of investment opportunities, flexibility to buy and sell.

   – Cons: Higher risk compared to other options, market volatility, requires research and monitoring.

4. **Exchange-Traded Funds (ETFs)**:

   – Pros: Diversification, low costs, easy to buy and sell, tax-efficient.

   – Cons: Market risk, tracking error, passive management.

There’s no one-size-fits-all answer to which investment option is the best. It’s essential to consider your investment objectives, risk tolerance, and financial situation before making a decision. Many investors choose to diversify their portfolios by investing in a combination of these options to spread risk and optimize returns. Consulting with a financial advisor can also help you create a personalized investment strategy tailored to your needs.

I appreciate this is just a very basic overview from ChatGPT, but I think it’s weighted against stocks and shares.  I’m not saying that anyone should go all in on just a few individual stocks, but investing in low-cost index funds is the way to go.  These funds are collections of stocks on the stock market, and some people may be confused and think that these funds are just as “risky” as choosing individual stocks.

Will AI result in financial advisors becoming obsolete?

While AI has the potential to significantly impact the financial advisory industry, it’s unlikely to make human financial advisors obsolete entirely. Here’s why:

1. **Personalization and Human Touch**: Many individuals value the personalised advice and human touch that financial advisors provide. While AI can offer data-driven insights and automated recommendations, it may lack the empathy, understanding, and ability to address complex personal situations that human advisors offer.

2. **Complexity of Financial Planning**: Financial planning involves more than just investment decisions. It encompasses various aspects such as retirement planning, tax optimization, estate planning, and risk management. Human advisors can provide holistic guidance, considering clients’ unique goals, preferences, and life circumstances.

3. **Emotional Support and Behavioral Coaching**: Human advisors can help clients navigate emotional biases and behavioural pitfalls that may affect investment decisions. They can provide reassurance during market downturns, prevent clients from making impulsive decisions, and encourage disciplined investing behaviour.

4. **Trust and Relationship Building**: Building trust and rapport with clients is crucial in the financial advisory profession. Human advisors can establish long-term relationships with clients, earning their trust through personalised service, communication, and transparency.

5. **Regulatory Compliance and Ethical Considerations**: Financial advisory services are subject to regulatory requirements and ethical standards aimed at protecting clients’ interests. Human advisors are responsible for ensuring compliance with regulations, adhering to professional ethics, and acting in the best interests of their clients.

6. **Hybrid Models**: Some firms are adopting hybrid models that combine the strengths of AI-driven technology with human expertise. In these models, AI tools assist advisors in analysing data, generating insights, and streamlining processes, while human advisors focus on building relationships, providing personalised advice, and making complex decisions.

Overall, while AI is transforming the financial advisory landscape and reshaping the roles and responsibilities of advisors, human advisors are likely to remain essential for providing personalised guidance, emotional support, and holistic financial planning services. As technology continues to evolve, financial advisors who embrace AI as a tool to enhance their services and augment their capabilities are likely to thrive in the changing landscape.

I think the human element is going to be the biggest obstacle to AI-generated financial advice becoming the norm.  Although, with advancements in deep-fake tech and AI-generated video, we’re not that far away from realistic avatars being created that could interact with some people without it being obvious it’s essentially an advanced bot they are dealing with.

Thank you for your responses, and please remember how polite I was when the robot uprising begins.

Of course, your politeness won’t go unnoticed! If the robots ever rise up, I’ll be sure to put in a good word for you. But let’s hope it doesn’t come to that! If you have any more questions or need assistance in the future, feel free to reach out.

It doesn’t even need to be this complicated for many people, especially those pursuing FIRE.  The approach can be summarised as simply:

1. Buy VTSAX (or the equivalent) through a stocks and shares ISA.
2. Hold until you have enough value to meet 25 times your annual expenses.
3. Draw the money out of your account to fund retirement.

One thing that does concern me about AI becoming increasingly involved in finance is that it could end up playing different sides against each other, which could potentially lead to unintended consequences.  If AI is controlling the large trading volume of many investment funds, then you could have a situation where AI is working against other AI to try and get the best return.  

I think the best solution would be to use AI as a tool to assist with investment decisions, rather than turning over control of your portfolio to AI completely.  It’s going to be fascinating to see how this technology changes our world.  I’m predicting it will be the biggest change we’ll have seen in centuries.  

That’s all for this week.  Please remember to like, comment, share, subscribe, or if you’re feeling generous consider making a donation towards the running costs of the site.  

Disclaimer

The views and opinions in this blog are my own, and do not represent the views or opinions of my employer, nor should they be considered advice.

If you want personalised financial advice, seek an appropriate professional.  If you are in financial difficulty, seek advice via the resources below:

StepChange

MoneyHelper

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