Broadening Market Accessibility: AI vs. Traditional Fund Management

Monday, January 15, 2024
AI vs. Traditional Fund Management

Traditionally, people with extra funds to invest have had to work with professional fund managers. These are able to analyze and choose stocks, bonds, and other investment options based on a wide set of data. However, with the growth of AI, more people are starting to consider using an AI portfolio. But what exactly is an AI fund manager? And is it better than traditional fund management? Let’s find out. 

What is an AI Portfolio? 

AI has become a central part of our lives. Most of us aren’t even aware that we rely on this technology for everyday activities. For example, virtual assistants or recommendation systems are all dependent on artificial intelligence. Now, the systems are getting much better and are even used to manage investments. The machines are able to analyze investment options to determine where they should invest a portion of the fund. 

What Are the Benefits of an AI Portfolio? 

There are many reasons why AI portfolios are growing in popularity. The first thing you’ll notice is that they offer greater market accessibility. They are actually designed to make investment less exclusive as people with small portfolios can still enjoy the services. The pricing is also favorable as most of the labor is automated. Note that investment managers typically collect a fee on your profits, typically going up to 20%. You may also have to pay an annual fee depending on the size of your portfolio. 

Another thing to note is that AI portfolios are able to analyze larger data sets compared to humans. They can scrape the entire internet and come up with recommendations within seconds. On the other hand, human managers are only able to evaluate data from a few days or months. They also have to sleep and do other normal human activities, and this limits the amount of data they can look at. Some patterns in the market may not be clear to humans. However, robots will instantly notice all patterns. 

You’ll also enjoy greater security with an automated investment. Normally, humans aren’t able to get out of risky investments fast enough, and this creates a risk of major losses. Robots don’t have this limitation. They’re able to evaluate the market continuously and determine when they should exit the market. Depending on your risk appetite, the system can spread your investment across low-risk and low-return investment options. 

The final thing we can mention regarding automated fund management systems is that they’re able to beat humans. They don’t make emotional decisions and can analyze data as it’s being released publicly. AI portfolios can also read online forums and news feeds. This is different from traditional fund management as the old system relies on historical data and fundamental analysis. 

The fact that the trades are carried out automatically also eliminates the issue of time wastage. There is also no chance that you’ll get human errors in the investments. 

Are there Any Challenges You May Experience with Automated Investments? 

Naturally, there are a few challenges affecting automated investments. One concern people have is that the systems haven’t been tested adequately. Before they start handling your money, these managers have to be validated, and you have to be sure that they can handle constantly changing market conditions. It’s important to only work with systems that are able to perform well all the time. So, it can be hard to verify that your system has been tested thoroughly. 

There are also ethical concerns that may lead to heavier regulation of AI portfolios. The systems may have algorithmic bias and accountability issues. 

While automated investments promote greater market accessibility, they have very high upfront costs, at least to the investment company. The company has to hire a skilled developer to create the investment system, and they also have to purchase data sources. The AI system also has to be tested thoroughly before it’s released to the market. In comparison, traditional investment managers have much lower upfront costs. 

AI-powered investment systems are also quite complex and difficult to understand. This doesn’t just make them hard to trade with; it also makes it difficult to evaluate the performance of the investments. 

Hybrid Approaches 

Given that humans and computers have their own strengths and weaknesses, it might be a good idea to opt for hybrid options. These leverage the strengths of both AI and humans. At the same time, it minimizes any weaknesses from each party. So, how do hybrid approaches work? 

They simply use AI to analyze the market and provide recommendations. An experienced human investor will then go over the recommendations before making a decision to invest or move assets around. 

Hybrid investors will also not suffer the same level of scrutiny as humans generally have the final say. It can be argued that human investors simply use AI as assistive trading tools. 

Similarly, there isn’t much to worry about regarding transparency as a human will look through the investments before making a decision. You can be certain that you’re protected by decades-long regulatory frameworks. 

As AI technology continues to improve, it is expected that the systems will be able to analyze larger sets of data in real-time, meaning they’ll be able to find patterns that would be impossible for humans to see. 


AI-powered investment management systems are slowly being adapted more and more. A key selling point of these systems is that they have very low fees when compared to traditional investors. The annual fees are also quite low. For this reason, more everyday investors are turning to automated investment systems. It is also worth noting that AI investors are able to analyze larger data sets and find patterns that would be close to impossible for humans. The other benefit of these systems is that they can keep trading 24/7 and can make decisions quickly. This minimizes the chance that you’ll lose money in a risky investment. 

AI systems aren’t perfect. In fact, they can pose serious risks. For example, it can be hard to tell whether the robots have been trained and tested adequately. They are also likely to be regulated heavily. To mitigate the limitations of AI systems, you can opt for hybrid investment systems.