The tech sector has seen significant volatility of late, with speculation growing about whether an artificial intelligence bubble could emerge following the surge. For young investors looking to get a piece of the action, with the right strategy, experts say it’s possible to get in on the action without taking all the risk.
Align AI investments with risk tolerance and goals
Dange said he usually starts with the basics – assessing a client’s risk profile and financial goals. “Not everyone can afford the risk of AI companies because they are more volatile,” Dange said.
Investing in artificial intelligence no longer means owning stock in well-known technology companies. Nvidia, Meta Platforms and AMD have been seen as representatives in the field of artificial intelligence in recent years, but they are not the only options. Companies are now investing heavily in artificial intelligence and its promise of productivity.
If clients’ goals are long-term, such as retirement savings, having some AI in their portfolios can complement other asset classes, Dange said. The volatility of AI stocks makes them unsuitable for short-term financial goals. For example, if you’re saving up to start a business or buy a house, it’s probably best not to consider AI stocks.
Another risk, he said, is that technology moves so quickly that what you have today might be obsolete in a year. “You have to invest carefully,” Dange said.
Investing in AI stocks suggests a balanced approach
Most investors Ryan Lee hears from are aware of the volatility, but they want to buy anyway. Lee, a certified financial planner and founder of Twain Financial, said choosing individual AI stocks to invest in could be a “too risky” move. He also said it’s important to remember how these AI stocks fit into your long-term investing strategy.
Some index funds in your portfolio may already be invested in artificial intelligence companies, such as exchange-traded funds (ETFs) that track the Nasdaq index. “When you hold a diversified portfolio, you already have exposure,” he said.
Lee said it’s hard to ignore AI stocks right now. “There will be artificial intelligence in the future… and there will be growth,” Li said. “But we just don’t know when that growth will happen or whether it will be higher than other industries.”
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Some investors may look to AI-focused ETFs rather than picking individual stocks, but Dhanji warned against excessive concentration. If young investors have a long-term investment horizon, Dhanji recommends allocating 10% to 15% of their portfolio to the field of artificial intelligence. But if investors are more conservative, Danger recommends limiting their AI exposure to 5% of their portfolio, or not holding any AI ETFs or stocks at all if they need the money in the next three years or so.
Regardless of financial goals and time horizons, Dange recommends steering clear of AI names recommended by social media. “My advice is to avoid the hype,” Dange said. “I would rather people focus on the companies themselves and making sure they have strong balance sheets and strong cash flow.”
If the AI bubble bursts, investing in high-quality companies with strong balance sheets will help your portfolio withstand the market’s extreme volatility over the long term, Dange said. “My advice is to have a financial plan, understand your cash flow situation, rather than investing all at once and timing the market, you can then evenly invest in the market over time,” he said.
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