23 December 2025 16h05

Source: Banco Carregosa

AI for Investments: The pros and cons, how to use it, and common mistakes to avoid

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AI for investments: the pros and cons, how to use it, and common mistakes to avoid

At a glance

• Although AI can analyse large volumes of financial data, identify patterns and simulate scenarios, it cannot make decisions for you;

• The value of AI lies in its combination of technology, quality data and human supervision;

• Using AI in a conscious and informed way helps to avoid common mistakes, make better decisions and improve the consistency of the investment process.

Did you know that around 90% of investment managers either use or intend to use AI (in a supervised manner) to assist with investment decisions and portfolio management? If professionals are doing it, it’s only natural to wonder whether you should too.

It’s possible that you already use AI for investment purposes, such as analysing markets, calculating indicators, summarising financial documents and identifying new opportunities. Perhaps you do so by using one of the many robo-advisor services that have emerged in recent years. The promise of AI in investment management is tempting, but to use it safely and intelligently, it's essential to understand its advantages and limitations, as well as the most common mistakes that can compromise results. Find out how to use AI in investment decision-making.

Advantages of using AI in investments

Artificial intelligence can be a valuable tool in supporting financial analysis. The main advantages are:

• The ability to analyse large volumes of data in a short time, including financial, macroeconomic and market information;

• Identifying patterns, correlations, and trends that would otherwise be difficult or time-consuming to detect manually;

• Simulating scenarios and assessing the impact of different variables on financial markets;

• Supporting the definition of investment strategies by taking into account the risk profile, financial objectives and different time horizons.

Limitations of using AI in investing

Despite its potential, the use of artificial intelligence in investment has significant limitations that should not be overlooked.

• Dependence on data quality: Models that are trained using incomplete, outdated or biased data can generate erroneous or unreliable conclusions;

• Excessive dependence on historical data: AI can become ineffective when new market conditions, financial crises or structural changes to the economy arise;

• Lack of human context: Political events, regulatory decisions, macroeconomic shocks and unexpected news may be misinterpreted;

• Lack of model transparency: Many systems operate like "black boxes”, which makes it difficult to explain forecasts or recommendations;

• Limitations of the algorithms themselves: There are well-known issues with AI algorithms. While they can process large amounts of information, they often struggle with simple mathematical calculations and can respond in a decontextualised or biased way. This phenomenon is known as ‘hallucination’;

• Risk of overconfidence: Using AI without human supervision may result in hasty or decisions not suited to the investor profile.

How to use AI in investment decision-making

Artificial intelligence should be viewed as a structured support tool for decision-making, rather than as a replacement for investors or financial advisers. When used effectively, it enables the organisation of complex information, the strengthening of analysis, and the support of more consistent and assertive decision-making.

1. Collecting and organising information

Initially, AI can assist with the collection, aggregation and organisation of large volumes of data from various sources, including financial statements, reports, economic indicators and financial news.

2. Financial analysis and identification of trends

Once the data has been organised, AI can be used to analyse key indicators, identify trends, relevant deviations and historical patterns. This analysis helps to identify opportunities or warning signs that may require further investigation by the investor or advisor.

3. Comparing investment alternatives

AI enables companies, sectors or asset classes to be systematically compared on the basis of multiple financial and operational metrics, such as profitability, risk, growth and efficiency.

4. Simulating scenarios and assessing risks

Another relevant application of AI is the simulation of different scenarios, assessing the potential impact of changes to variables such as interest rates, inflation, economic growth or market volatility. These simulations help us to better understand the risks involved and make decisions that are more aligned with our risk profile and objectives.

5. Continuous portfolio monitoring

Once the investment decision has been made, AI can be used to continuously monitor the portfolio, which will then signal:

• Relevant changes in the risk profile;

• Changes in the market environment;

• Deviations from the defined objectives.

This monitoring enables more timely and informed action, with human supervision at all times. Remember that AI does not decide when, where or how much to invest. As it is only a tool, its value lies in supporting each stage of the process, helping to reduce "noise”, organise information, and improve the quality of decisions.

AI in investing: Common mistakes to avoid

To ensure the safe and responsible use of artificial intelligence, avoid the following:

• Sharing sensitive personal data: Passwords, IBAN, taxpayer number or private documents, when using any AI tool;

• Trusting automatic forecasts blindly and uncritically: Without analysis or supervision by a qualified professional;

• Assuming that probabilities are guarantees: AI identifies trends, not certainties, and markets change rapidly;

• Using simple tools for complex decisions: Such as buying individual shares or long-term financial planning;

• Following recommendations without validating sources and methodologies: Ensuring that the information used is reliable, up to date and in the right context.

Using AI in investing: is it worth it?

When used wisely, artificial intelligence can be a powerful ally in investment management. This technology improves the efficiency of analysis, reduces emotional bias and supports data-driven decision-making.

No algorithm can replace the knowledge and experience of investors, or of specialised teams such as those at Banco Carregosa, nor can it replace an understanding of the economic context or an assessment of personal objectives and risk tolerance.

When used correctly, AI doesn't make decisions for you, but it helps you make better decisions.

FAQs: AI in investing

Get all your questions about using AI in investing answered.

Do I need to be a professional investor to use AI?

No, there are applications designed specifically for individual investors. However, it is important to understand the limitations of these tools and validate their recommendations. Human oversight of decisions is also essential.

What risks are involved in using AI for investment purposes?

The main risks include dependence on quality data, biased models, a lack of human context, unexpected results, and the temptation to blindly trust automatic recommendations.

Does AI replace the financial advisor?

No, AI is a complement to human work, not a replacement for experience, judgement and personalised advice.

AI-powered investment solutions from Banco Carregosa

Banco Carregosa is at the forefront of using technology in investment management. If you are looking for a more analytical approach to investment, backed by professional support, our specialised consultants are on hand to help you make decisions that align with your objectives.