Efficiency Squared

Gloria Franz |

Even though technological breakthroughs have been here and have evolved over the years, once again it feels like we’re going through a period of transformation with the advent of things like AI, self-driving cars, and augmented reality/virtual reality. Perhaps, it’s the hardware catching up to the software or our imagination catching up with what the software and hardware can do now that couldn’t before.

It’s simultaneously exciting and frightening.

First, the exciting part.

We are discovering new ways to make our lives better and easier and also more fulfilling. We can track our health, our reading, our favorite podcasts, our meditation, our exercise, and even our sleep. This was completely unthinkable not that long ago.

Our cars can generate less pollution, can park themselves, and can help us be safer. At some point, our cars will be fully driving us around without our having to pay attention to the road.

On a personal level, we can communicate with all of our friends and family instantaneously and share pictures. On a macro level, with just a tap or swipe or two, we can hear about everything that is happening in the world – news, conflicts, entertainment, politics, our economy, our environment, and even about new technologies. We also can’t forget about all of the fun videos of dogs and cats.

Instead of having a gazillion passwords to keep track of, we have digital wallets that record our face or fingerprints and can login for us. They can allow us to
make transactions or enter a concert, plane, or a sporting event. Watches can tell us to be more active, who has called us or texted us, as well as give us feedback on our vital signs.

I can use apps that are synchronized between my iPad (Apple), my Samsung phone (Android), and my Microsoft Surface (Windows) virtually in real-time. I can reply to messages on my phone with my computer and stream audio from my phone to my Echo device and answer phone calls through my computer speakers and microphone.

The list of both simple and elaborate innovations and use cases goes on and on.

And now we have artificial intelligence (AI) that can build us websites, analyze data, write or correct code, tell us a joke or a story, create beautiful art, or give us detailed instructions on how to optimize our computer, our schedule, our goals, and many more things. This AI is integrated with the cloud, where thousands of servers work together to calculate, write, and create, but also to learn. This is the fascinating part – machine learning! It’s mind-boggling to think that a program could write another program or that we can teach large models of what is good and what is bad.

This is also where the scary part comes into play. We know that there are some bad actors out there and there are also some unintended consequences with this new information and access.

There are ways that all this technology can be harmful. These include:

  • Privacy: Selling and reselling of our data and the potential for identity theft.
  • Isolation: Too much time interacting in the virtual world can lead to loneliness and decrease our ability to socialize.
  • The Scrolling Pitfall: We can go down virtual rabbit holes or we can waste time endlessly scrolling and not interacting with the real world around us.
  • Unhealthy Comparisons: We can make unhealthy comparisons of others and ourselves over followers, friends, likes, views, or comments.
  • Polarizing Bubbles: Algorithms could keep us glued to information that reinforces our own biases rather than exposing us to diverse perspectives.
  • Less Kindness: Too much anonymity in online interactions can lead to increased hostility and disrespect.
  • Lack of Empathy: Spending too much time online can sometimes reduce our ability to empathize with others in real-life situations.

But, Jim, what does any of this have to do with investing or following a financial plan?

I bring all of this up for two reasons:

  1. Just like we can have a diversified portfolio focusing on risk-adjusted returns, we can also have a balanced approach to how and when we use technology and avoid some of the pitfalls mentioned above.
  2. We need to understand that as great as all of this advancement is, there is still a very real and clear need to continue to rely on real people for everything from health advice to financial, tax, or legal advice.

It’s true that skilled and experienced professionals will likely use more technology to become more efficient and to spend more time with clients or patients and less time researching or analyzing, but we are probably never going to get to the point of having zero interaction with a human being about our finances.

I remember when the first robo-advisory products started rolling out. One platform, that I will not name, thought it was optimal to invest nearly half of a client’s
portfolio in emerging market equities. This made no sense when looking at asset allocation in several different ways, but their model was heavily skewed toward optimizing based almost purely on valuation metrics. Since emerging markets had the most attractive valuation, they allocated a massive amount to
emerging markets. Any good financial advisor would recommend against such a strategy.

It’s also important in the world we live in to understand real facts and those things that are fake. It will likely get more difficult if AI is used in bad ways, but we can always trust in real people who have processes that systematically seek to remove anything that is noise from the vast array of data that is out there. Most have heard of the saying “garbage in, garbage out.” Having a disciplined process to remove bad data or noise gives us a better chance of getting the optimal output.

This is different than following the latest investment fads or headlines, that may not have a clear distinction of inputs or outputs. In short, caveat emptor probably is more applicable today as a principle to follow than any other point in time. This can be applied to our adoption of and use of technology, which can improve our lives, but also with getting financial advice.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice o‑offered through WCG Wealth Advisors, LLC, a Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.