Over the past year, economists have largely agreed that the U.S. will slip into a recession at some point in 2023, with a recent Wall Street Journal report putting the odds in the 61% range. It turns out there is. And with inflation hovering at 4.9%, the Federal Reserve raising interest rates at the fastest pace in 40 years, and 30-year fixed-rate mortgages hovering around 7%, there are signs of weakness. However, the country has not yet entered a technological recession.
We know what humans think about the potential threat of a prolonged economic downturn, but what do the latest advances in artificial intelligence (AI), especially ChatGPT, have to say about the matter? Today, we asked ChatGPT-4, the latest version of the platform, to discuss how best to prepare for a financial downturn in case it hits. We then asked our financial advisors to criticize the response. (Looking for a Financial Advisor? This tool allows you to match with advisors who may meet your needs.)
How should we financially prepare for a potential economic downturn?
ChatGPT-4 response
“It is always a good idea to prepare financially for a potential economic downturn.
- create an emergency fund: Save enough money to cover at least 3-6 months of living expenses. This eliminates the need for credit cards and loans during a recession.
- Pay off debt: If you have outstanding debt, focus on paying it off as soon as possible. This will reduce your monthly expenses and help you get through your financial troubles.
- Please reconsider your investment. Review your investment portfolio and make sure it is diversified. Consider investing in lower risk options such as bonds and avoid pouring all your money into his one stock or industry.
- Reduce unnecessary spending. Review your monthly expenses and look for ways to cut them. This saves you money and reduces your monthly financial burden.
- Increase your income: Look for ways to increase your income, such as working part-time or becoming a freelancer. This will allow you to build an emergency fund and pay off your debt faster.
- Stay up to date with: Stay on top of the latest economic news and trends. This helps you make informed financial decisions and adjust your strategy as needed.
Remember, preparing for a potential economic downturn means being proactive and taking steps to protect your financial future. By following the steps above, you’ll be better prepared to weather any financial challenges that may arise. ”
Note that much of this answer from ChatGPT was extracted almost directly from various articles on this topic from places such as: bank rate, cointelegraph and motley foolto name a few.
Responses from human financial advisors and our analysis
These steps are no different from the advice of most financial experts. But while AI can piece together the technically correct response, Catherine Vallega of Green Bee Advisory in Boston says that the latest and greatest technology has one big flaw: “Financial planning processes. It completely misses that is dynamic and personal.” ”
“Most of my job as a financial advisor is to understand my clients’ unique money stories,” says A.D., who is also a certified financial planner and holds a master’s degree in international relations from the Johns Hopkins School of Advanced International Studies. Acquired Valega says. She holds a BA in Economics from the University of Pennsylvania. “Money relationships are often more complicated than relationships with partners.”
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She’s right that ChatGPT may not provide enough personalized advice, at least not yet. Check out our advice on emergency funding. ChatGPT recommends 3-6 months of living expenses, but 1) experts often say that emergency funds only need essential living expenses, 2) freelancers, seasonal workers, etc. , 6 months may not be enough money for some people. They work in high-risk industries where layoffs are more common and hiring is difficult to replenish. In other words, that general advice may actually harm some individuals.
Also, the above general advice from ChatGPT may not be the best for everyone when it comes to paying off debt. Consider someone with a mortgage at about 3%. Paying off this type of debt actually misses out on higher returns from other investments, leaves you with a lot less liquidity, and could incur future losses if the housing market fluctuates and all your cash is trapped at home. There is a nature.
Ultimately, Varega says that while he thinks ChatGPT will be useful to some, its most beneficial contribution is “to boil down complex topics into understandable language.”
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verdict
For those looking for general advice, ChatGPT can point you in the right direction and help you start your fact-finding journey. (Be sure to fact-check what you find out.) While it’s also a free tool (financial advisors obviously aren’t), it’s also an ongoing resource for follow-up questions. But the latest advances in AI are still in their infancy, and chatbots, at least in the first half of 2023, are best suited to copying and combining existing resources to provide simple answers to more complex questions. .
