Machine Learning in Finance: Present and Future AI Applications

The term "robo-advisor" was essentially unheard-of just five years ago, but it is now commonplace in the financial landscape. The term is misleading and doesn't involve robots at all. Rather, robo-advisors (companies such as Betterment, Wealthfront, and others) are algorithms built to calibrate a financial portfolio to the goals and risk tolerance of the user. Users enter their goals (for example, retiring at age 65 with $250,000.00 in savings), age, income, and current financial assets. The advisor (which would more accurately be referred to as an "allocator") then spreads investments across asset classes and financial instruments in order to reach the user's goals. The system then calibrates to changes in the user's goals and to real-time changes in the market, aiming always to find the best fit for the user's original goals.