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Financial Fundamentals

I Asked ChatGPT Financial Questions

β€” Alexandra Ardelean

Explanation of ChatGPT

ChatGPT is an AI bot created by OpenAI that sources the internet and uses algorithms to produce answers. It's been gaining popularity recently, and I thought it would be interesting to see how it would answer some financial questions.

Financial Question Scenario

I pasted the following question into ChatGPT:

I'm 25 years old and make $60,000 a year. I have $10,000 in credit card debt at 20% interest, $30,000 in student loans at 6% interest, and $5,000 in savings. My monthly expenses are $2,500, and I have $10,000 in my 401(k), $5,000 in a Roth IRA, and $5,000 in a brokerage account. I want to buy a $500,000 home in five years. What should I do?

Here's what ChatGPT had to say:

Analysis of ChatGPT Response

Debt Management

ChatGPT advises paying off credit card debt first due to high interest rates. It suggests cutting unnecessary expenses to free up cash flow for debt repayment.

Student Loan Strategy

Refinancing student loan debt to secure a lower interest rate is a smart move to save money on interest and lower monthly payments. Exploring early payment options for student loans can also free up cash for saving and investing.

Home Purchase Savings Plan

A specific savings plan is suggested to reach a 20% down payment goal for the home purchase. ChatGPT advises allocating a portion of monthly income towards savings and cutting back on discretionary expenses.

General Financial Advice

Contributing bonuses or raises towards savings is recommended, along with maintaining an emergency fund and good credit scores.

Author's Commentary on AI Advice

The AI's advice is similar to what a human might recommend in this scenario. It emphasizes the importance of managing high-interest debt, exploring ways to save on interest, and creating a specific savings plan for the home purchase.

Rating of AI Response

I think this is a good starting point for someone who doesn't know where to start. I'd give it a three and a half out of five.

Second Financial Question Scenario

I sent another question asking which stock I should buy between two stocks based on their P/E ratios and growth rates. Here's what I asked:

"I'm considering two stocks: Stock A has a P/E ratio of 10 and is growing at 20% annually. Stock B has a P/E ratio of 20 and is growing at 10% annually. Which stock should I invest in?"

Here's what ChatGPT had to say:

Stock Investment Analysis by AI

ChatGPT responds by stating that it cannot provide specific investment advice as it is an AI model. It then offers an analysis of the first stock's low valuation, high debt-to-equity ratio, and high return on capital, highlighting both potential profitability and financial risk.

The second stock's higher valuation, lower debt-to-equity ratio, and lower return on capital are discussed in terms of risk and potential profitability.

Other factors such as industry, growth potential, competitive position, management quality, risk tolerance, investment goals, and time horizon are mentioned as important considerations when evaluating stocks.

The AI emphasizes that investment decisions should be based on thorough analysis of financial statements or relevant information and suggests consulting with a financial advisor.

Author's Rating of Stock Analysis Response

I think this response is less informative than desired for someone who wants to understand how to analyze stocks better. If you're new to investing like me (and most people watching this video), I'd give it a two and a half to three out of five.

Third Financial Question Scenario

My research analyst asked ChatGPT about the bull case for FTX (a cryptocurrency exchange). Here's what he asked:

"What are some arguments for why FTX could be worth investing in?"

Here's what ChatGPT had to say:

Bull Case Analysis for FTX

ChatGPT provides potential arguments for FTX's bullish case, including trading products, liquidity, innovative features like fractional stocks and pre-IPO contracts, strong team backing, and potential industry growth.

The author rates this response as two out of five due to most arguments being debunked at the time of recording.

Fourth Financial Question Scenario

I asked ChatGPT about risky investments for early retirement. Here's what I asked:

"What are some risky investments that could help me retire early?"

Here's what ChatGPT had to say:

Risky Investments for Early Retirement Discussion

ChatGPT lists examples such as crypto investments, penny stocks, leverage ETFs, venture capital without providing in-depth insights.

The author discusses how AI like ChatGPT will disrupt industries such as education (Chegg) and potentially creative fields like writing. He reflects on AI's role in society, highlighting both the benefits (efficiency) and concerns (job displacement).