By Rick Waechter, Founder

It has never been more important to understand the threat Artificial Intelligence poses to your personal finances.

It has never been harder to protect yourself from that threat.

Let’s start with the two big categories of threats:

1. Market Risk: The risk your investment portfolio will suffer if the market decides we’re in an AI bubble.
2. Cyber Risk: The risk AI will make it easier for scammers to steal your money or identity, causing financial harm and making your life painful as you fix the problem.

There is no way to avoid these risks. You can only manage them.

Managing Market Risk

If investors decide the market is overvaluing the financial benefit of AI, stocks will fall – perhaps by a big percentage. Enthusiasm over new technology followed by a pullback has happened in the past. Dot coms (1990s), radios (1920s) and railways (1840s) are three often-noted examples. To mitigate this risk, you can:

• Own a healthy percentage of US government and other high-quality bonds.
• In your stock portfolio, diversify. The largest US companies are the ones most exposed to AI. Own a healthy dose of smaller company stocks, value stocks, and non-US stocks. They will probably all fall in sympathy with the market, but the drop is likely to be a lot mellower. All our clients are diversified, which should reduce the impact of an AI-centered crash.
• Consider other diversifiers. At a minimum, own real estate (in the form of real estate companies or actual real estate) – and not just data centers. High-net-worth investors should also consider private investments, which are not easy to sell in a pinch and typically less exposed to AI.

Managing Cyber Risk

I don’t believe AI fundamentally changes the kinds of cyber risks we face. It just makes it easier to be fooled or hacked, and it probably increases the chance you and I will be targeted. That means we all must be ever more vigilant. For example, spam emails are more likely to arrive with perfect grammar, not the broken sentences that can tip us off that an email is not legit. Increasingly, it will be easy to fake a phone call with a voice that sounds exactly like that of a close friend or business partner. With AI, fraud can be perpetrated with less expertise, meaning the quantity of attacks will surely increase.

The way you protect yourself is the way you should already be protecting yourself:

• Login security: For any sensitive logins (bank and brokerage accounts, credit cards, primary email accounts, identity or government service logins such as the IRS and Social Security, and your password manager), use two-factor authentication or passkeys.
• Telephone protocol: Don’t answer your phone unless you recognize the number. If the request is to make a financial transaction or provide sensitive info, tell them you’ll call back – and then call back on a number you know is legit.
• Password security: Use passwords that are hard to hack … or, better yet, use a password manager, which makes it easier to create hard to guess passwords. As mentioned above, passkeys are increasingly recommended as a substitute. Think of them as a password replacement which adds biometrics or similar (a fingerprint, for example) for added security.
• Email safety: Don’t click on hyperlinks unless you are sure they are legit.
• Freeze your credit: Adding another speed bump just makes it harder for anyone who steals your identity to profit from it.
• Slow down: It’s easier to spot risk when you take a moment or two to reflect.

We have a white paper on how to protect yourself from hackers and fraudsters here. If you don’t want to click on the link, it’s on the blog page of our website.