Potential investors in artificial intelligence need to be aware of risks
I am a high income earner and have some money on hand and I am looking for what to invest in. I don’t know much about investing, but I’m considering investing in AI start-ups. The technology field excites me, and from what I’ve heard, AI is being called the next industrial revolution. Seems like a good time to get in. What are you thinking?
One of the challenges high net worth individuals face when it comes to investing is discipline. It’s easy to throw some money at something that seems like the “next big thing.”
You don’t have much to lose because you have plenty of money to spare or earn it back easily. This can lead to more speculative behavior – betting on things that sound good.
Is this wrong? Not necessarily. The real question is: What are you trying to accomplish and is this an effective strategy for moving toward your long-term financial goals?
Investing in the ‘next big thing’
If you’ve been in the tech world for a while, you know that artificial intelligence isn’t actually a first. Remember the dotcom bubble? Or is it when everyone declares that crypto will change the world and that Bitcoin will replace our entire financial system as we know it? Or remember NFTs?
Often, those who are truly successful in these types of bubbles get in long before these bubbles become mainstream.
This is the hardest part about tech bubbles. The underlying technology may have value, but that doesn’t mean everything that emerges from that technology is valuable. In fact, most of them won’t. Ask anyone who has bought into the crypto excitement.
Many people have lost big money backing crypto start-ups that went nowhere, buying crypto technologies that had no real-world application, investing in Bitcoin based on excitement and then not being able to handle the volatility.
Were there crypto millionaires? Yes. But what many people don’t realize is this; Usually the ones who are really successful in these types of bubbles get in long before something becomes mainstream. The real “early” investors in AI were investing years ago, not after ChatGPT was released. Once something becomes mainstream, you lose much of the opportunity for dramatic early gains.
Does this mean there’s still no room for significant growth? No. But this means there is a lot more noise in the market; Every other tech enthusiast is trying to start an AI company. It will be more difficult for the amateur investor to understand which opportunities are valuable.
Additionally, most of the people featured make affordable investments. They often have some level of industry access or knowledge that allows them to identify opportunities early, make more informed decisions, and be more confident about the investments they make. In other words, they don’t just make predictions or place random bets.
Are there people who got lucky by jumping in blindly? Certainly. But let’s be realistic here; If that’s what you’re hoping for, you’re essentially buying a lottery ticket. And we all know that most people lose more money on lottery tickets than they can win back.
Investing fundamentals remain unchanged for high-income earners
If you have lots of money, it’s tempting to think that you can somehow skip the basics and jump straight into juicy, high-yield investments. Technically, you can do this in the sense that you can financially afford to take this risk without it hurting you as much as the average person.
But just because you can afford something doesn’t mean you have the skills to make it successful. Just because you can afford a plane doesn’t mean you know how to determine if it’s a good plane to buy, let alone how to fly it. This increases the possibility of error.
I know sitting with cash can be frustrating. You may feel a certain pressure to invest that money into something as quickly as possible, but it’s much better to give yourself time to understand how to invest well rather than rushing into something and just hoping it works.
If you don’t know much about investing, give yourself permission to be a beginner. Learn the basics – what really makes a good investment? How do you design a portfolio? What is asset allocation? Everything you learn in the process of acquiring these skills will help you become a more confident investor, no matter what you invest in.
Your first goal shouldn’t be to get into the “next big thing” but to build a well-diversified core portfolio that you can hold for the long term. I know this sounds boring, but that’s what a good investment should really be.
You can then allocate a small percentage of your portfolio to “fun” investments if you want. This way, you give yourself some room to have fun with your investments without betting the entire farm.
Paridhi Jain is a money and mindset coach who combines practical strategies with mindset transformation to help clients create wealth, greater freedom and fulfillment in work and life. Find Paridhi on: skillsmart.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paridhi Jain is a money and mindset coach who combines practical strategies with mindset transformation to help clients create wealth, greater freedom and fulfillment in work and life.
