Current market environment performance of dynamic, risk-managed investment solutions.
By Will Hubbard
In 2019, my wife, Abby, and I spent a few weeks in England, taking in many of its historical landmarks: Buckingham Palace, the Tower of London, and the National Gallery. Standing before an original Monet or van Gogh evokes emotions that a copy or replica cannot capture. There’s something deeply moving about seeing the authentic brushstrokes—the passion and human creativity embedded in each masterpiece.
That same distinction between the authentic and the replicated can help us better understand the evolving role of artificial intelligence (AI) in investment management.
AI is changing the investment landscape
Artificial intelligence is rapidly reshaping how financial professionals analyze data, assess risks, and construct portfolios. Like the revolutionary tools that changed the art world, AI is a powerful instrument—but it remains just that: a tool. As van Gogh’s brush served his vision rather than creating it, AI supports the expertise of investment professionals.
The capabilities AI brings to the investment management industry are impressive. Through natural language processing, AI systems can digest and analyze thousands of unstructured documents—earnings calls, regulatory filings, executive interviews—at speeds no human team could match. These systems can uncover subtle relationships among variables that might otherwise go unnoticed, helping portfolio managers identify opportunities and risks with greater precision. Risk management has advanced through AI’s ability to simulate countless market scenarios, providing deeper insights into potential vulnerabilities within portfolios.
AI has also made straightforward investment strategies more accessible and affordable. For example, creating balanced allocations—like the traditional 60/40 split between stocks and bonds—now requires less human input.
But this efficiency doesn’t mean the work is done. Instead, it shifts the industry’s focus toward forward-looking strategies that AI alone can’t manage.
The limits of AI
AI is only as good as the data it’s trained on. The old saying “garbage in, garbage out” applies perfectly here. While AI excels at tasks supported by abundant historical data—such as building algorithms to assess creditworthiness—it struggles with unprecedented events.
“Black swan” events such as the COVID-19 pandemic, the Russian energy crisis, or various debt ceiling standoffs arise with little warning and unpredictable consequences. No current AI system can foresee these scenarios if they’ve never appeared in its training data. In these moments, human judgment becomes essential.
We can imagine, discuss, and hypothesize about how portfolios may perform under certain events and “what-if” scenarios—something AI simply can’t do without direction. We can then use this information when building our models. This ability to think beyond the data is what makes human insight irreplaceable.
Why the human touch still matters
AI-generated portfolios can be efficient and technically sound—but they often lack the nuance, warmth, and vision that human professionals bring. Much like AI-generated artwork, they may imitate the strokes of past masters but can’t envision what hasn’t yet been painted.
This becomes especially apparent during market transitions, inflationary periods, or geopolitical upheavals—when investors need thoughtful guidance, not just historical replication. It’s a reminder of the timeless disclaimer: “Past performance is not indicative of future results.”
A hybrid approach at FPI
At Flexible Plan Investments (FPI), we view AI as a powerful complement to human expertise—not a replacement for it. Today’s most effective investment teams use AI to enhance their decision-making while preserving the creativity, adaptability, and judgment only humans can offer.
We also recognize that diversification remains crucial, incorporating assets like commodity trading advisors (CTAs), which can provide added resilience during traditional market downturns.
Research by PGIM Wadhwani and Simplify shows that modifying a traditional 60/40 portfolio to include a small allocation to CTAs can significantly improve outcomes. Their studies suggest this shift could have reduced maximum drawdowns during the 2008 financial crisis and other downturns, while statistically improving the Sharpe ratio. (To see how FPI incorporates specialized mutual funds offering exposure to these types of alternative asset classes into accessible investment solutions, read Jerry Wagner’s piece: “FPI brings Eckhardt’s elite trading strategies to your portfolio.”)
These findings highlight how multistrategy diversification—informed by both AI-driven analysis and human insight—can strengthen portfolios and better prepare them for uncertainty.
Looking ahead
As we navigate an increasingly uncertain financial landscape marked by geopolitical tensions, market volatility, and economic challenges, the need for a hybrid approach has never been greater. AI provides speed and scale, but humans bring foresight, flexibility, and understanding.
Investment professionals and investors who overlook the value of combining AI with human insight may find themselves at a disadvantage. Forward-thinking firms are developing frameworks that integrate AI’s analytical power while preserving the human judgment essential to effective portfolio management. Just as van Gogh and Monet used the tools of their time to create enduring masterpieces, today’s most resilient portfolios may come from those who skillfully blend technology with human expertise to navigate whatever comes next.