5 AI Prompts That Will Change How You Manage Money (And 3 Things It Still Gets Dead Wrong)

0:00AI doesn't do financial planning. You do financial planning. The AI just makes it more accessible, more interactive, and potentially a lot cheaper. But the quality of the output is a direct function of the quality of your input. Garbage in, garbage out. And in financial planning, garbage can be measured in the size of your retirement account. Hello friends, this is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple and learn from and alongside some of the brightest minds in money, finance, and investing.

0:39So let's get started and get you one step closer to where you need to be. Welcome back to your Money Guide on the Side. I'm Tyler Gardner, and today we're doing something that I've been genuinely looking forward to for a while because the number of questions I've gotten on this topic has officially reached what I call the critical mass level, which is the level where I stop answering individual messages and make a whole episode instead. So congratulations, Collective Inbox. You win. Today's episode, artificial intelligence as your financial advisor. I did an episode on this about a year ago at this point, and it got a lot of positive responses.

1:19But even just over the past year, we've gone from AI might be helpful and cool to holy crap, this thing is pure insanity, and if you're not using it in some way daily to help you optimize your life, well, I think you're truly missing out. Additionally, I think this might be the most important episode I've recorded, since the tools at your disposal now could quite literally change your life, as they certainly have mine. But before anyone goes and writes in the comments, and someone always does, is Tyler, AI can't replace a human advisor. I want to be very clear up front. I know, that's actually the point of the episode.

2:03We're going to talk about what AI can do, which is quite a lot, what it cannot do, which is also quite a lot, and we're going to do the thing we always do on this show, which is look at some real data and use that data to make better decisions instead of just guessing our way to and through retirement. I know, wild concept. But first, and I mean this every single time I say it, if this show has been even remotely useful to you, if you've learned something, made a better financial decision, or even just felt slightly less like you're winging your entire financial life, please consider leaving a review on Apple Podcasts or Spotify or wherever you listen.

2:44Your review helps new people find the show, which affects whether more people learn this stuff, which is genuinely the entire point of the entire endeavor. We're going to start section one with what I'll call how to actually use AI as a financial guide. Let me start with a number that I think about a lot and I've shared with you a lot. According to Dalbar, that's the research firm that's been tracking investor behavior since 1994. The average equity investor has historically underperformed the S &P 500 by somewhere between 1.5 and 4 percentage points per year, every year for 30 years. Now, just to be clear about what that means in practice, if the market returned 10 % and you returned 6.5%, you didn't lose money.

3:34You just made significantly less of it than you would have had you just stuck the money in an index fund and compounded over a 30-year career, that gap doesn't look like a minor rounding error. It looks like retiring with about half the money you should have had. Now, I'm not telling you to just put all your money in a stock index, as that's not always going to be right for you, and we'll explore exactly how you can figure out what is right for you throughout this episode, but you do need to always be looking at what are called benchmarks, which just means how the market indexes are doing on their own and see how your portfolio is doing relative to those indexes.

4:15Now, why do we underperform, on average, a basic index? Well, according to Vanguard's research, and they've studied this stuff exhaustively, bless their souls, the single biggest source of value a financial advisor provides isn't picking stocks. So stop asking a prospective advisor if they can beat the market. That's not what they're there for, especially in this era with the abundance of information we all have. Their value primarily comes from what they call behavioral coaching, specifically stopping you from doing something catastrophically stupid when the market drops 30 % and your lizard brain is screaming at you to sell everything, buy gold, and renovate the basement so it serves as your future bunker.

5:03Vanguard estimates this behavioral coaching is worth about 1.5 % per year in added returns, which is remarkable because what they're essentially saying is a good advisor's primary value is talking you out of talking to yourself. So let's enter this episode agreeing that most financial advisors these days are saying their added value in theory and practice is to be your behavioral coach. Okay? Now, here's where AI enters the picture. Because it turns out, and I've spent a lot of time talking about this and testing this, a well-prompted AI can do a genuinely impressive version of exactly that type of behavioral coaching.

5:49Not necessarily all of it, but far, far more than you might expect. Here's the framework I want to give you today. Because using AI for financial guidance is not like asking what temperature we should bake chicken at. The output is only and forever as good as the input. And most people, no offense, are asking terrible questions to AI and then deciding AI is useless, which is like giving someone a violin for the first time, deciding they're terrible at music, and blaming the violin. The prompts matter enormously. So I'm going to give you the specific prompts that actually work. You can write them down, pause the episode, or just subscribe to the newsletter at tylergardner.com.

6:35Do whatever you need to do. These are real, and if a human can get you an additional 1.5 % return by being your coach, just imagine what a 24-7 access language model can do for you if prompted well. Step one, we're going to build your financial profile. The first thing you need to understand about AI financial conversations is that the model has no idea who you are. Even from one session to the next, it can forget every input you gave it unless prompted otherwise. It doesn't know your age, your income, your debt, your goals, your portfolio, your risk tolerance, or the fact that you panic-checked your brokerage account 17 times during the 2022 drawdown.

7:23You have to tell it, and then you have to tell it again. Always. Now, I'll come back to the privacy concerns around this in a bit, and they are real. But for now, let's talk about how to create a financial profile effectively. The single most important thing you can do before any AI financial conversation is give it a complete financial snapshot. And I do mean complete. Here is prompt number one, the financial snapshot. You're going to actually enter this exact text. And again, this is in the newsletter this week and in the show notes if you want the actual language. I want you to act as a knowledgeable, objective financial guide, not a licensed advisor, to help me think through my financial situation.

8:13I'm going to give you my full financial picture, and I want you to ask me follow-up questions until you have everything you need to give me useful, specific guidance. Here's where I am. Age. Household income. Monthly take-home pay. Current monthly expenses. Break that down into housing, food, transport, subscriptions, emergency fund, what types of debt, what types of current retirement accounts, 401k, IRA, pension, any other investments, taxable brokerage, real estate, do you even have an employer 401k match? Then time horizon to retirement or your respective goal, and then what you think your risk tolerance actually is.

9:04Conservative, moderate, aggressive. Then your biggest financial fear, let's be honest, and then your financial goal for the next 12 months. Finally, you would close the prompt by saying, please review what I've shared. Ask me anything that would help you give better guidance, and then tell me the three most important things I should do first. The reason this prompt works is because it forces you to articulate your situation in full, which most people have never done in one place. And it tells the AI to ask follow-up questions rather than just give generic advice. That follow-up loop is where the real value is.

9:46Step two, understanding your actual risk tolerance. Here's a fact that should humble all of us. A Morgan Stanley survey found that roughly 70 % of investors don't actually know their own risk tolerance. Bluntly, I'm surprised it wasn't higher. They think they do. They'll tell you they're moderate. And then a correction happens and they discover they are, in fact, extremely not moderate. Risk tolerance has two components that most people conflate. There's your ability to take risk, which is mathematical, based on time horizon and financial situation. And there's your willingness to take risk, which is psychological, based on how you actually behave when things go wrong.

10:29Both matter, and they're often miles apart. Here's a prompt that actually stress tests this in a useful way. This episode is brought to you by Gelt. Here's a question I bet you've never asked yourself, what's the difference between a tax preparer and a tax strategist? A tax preparer shows up once a year, collects your documents, fills out forms, and tells you what you owe. That's it. Transaction complete. A tax strategist, they're calling you in October saying, hey, you're about to cross into a higher tax bracket. Let's talk about accelerating some expenses. They're texting you in December. Don't take that distribution yet.

11:12Let's run the numbers first. If you're a small business owner or a high earner, that distinction is worth tens of thousands of dollars a year. Gelt isn't your dad's CPA firm. They're proactive. They reach out throughout the year with actual strategy, not just compliance. Should you buy that equipment before year end? Should you pay yourself a bonus or leave it in the business? What's your estimated payment schedule look like to avoid penalties? And here's what surprised me. Their platform doesn't feel like tax software from 1997. It's actually organized, intuitive, and built for people who run businesses, not accountants who love pivot tables.

11:54So if you've been avoiding finding a real tax partner because you assume it's expensive or complicated, stop. Gelt can save you money and simplify your life. and they'll give you a free consultation to see if it's the right fit for you. Head to joingelt.com slash Tyler. That's J-O-I-N-G-E-L-T dot com slash Tyler. This is prompt number two, finding your real risk tolerance assessment. You're going to enter. I want to figure out my actual risk tolerance, not what I think it is, but what it probably should be based on both my financial situation and my psychology. First, here's my financial situation.

12:42This is where you would paste your prompt number one or the summary. Now, I want you to walk me through three scenarios and I'll tell you honestly how I'd react. Scenario A, the market drops 15 % over three months. My$100 portfolio is now worth$85 ,000. what would I want to do? Scenario B, the market drops 35%, similar to 2022, 2008. My 100 ,000 is now worth 65 ,000. It's been down for eight months and no one knows when it will recover. What would I want to do? Scenario C, a single stock I own drops 60 % after bad earnings. My entire position that was worth$20 ,000 is now only worth$8 ,000. What would I want to do?

13:30Based on my answers to these scenarios and my financial situation, what is my actual risk tolerance and what asset allocation does that suggest? Please also tell me if my stated risk tolerance and my behavioral risk tolerance appear to be different and what that means for how I should invest. This prompt works because it uses scenarios instead of abstract questions. Are you comfortable with risk is a meaningless question. Of course, everyone says yes in a bull market, but your portfolio is down 35 % and has been for eight months. That question has a different answer. That's the answer that actually matters for how you should be invested.

14:16Step three, build an actual allocation strategy. Okay, once you have your financial profile and your real risk tolerance, you can ask AI to help you build an allocation strategy. And here is where it genuinely shines, because it can explain the logic behind different approaches in plain English, use specific fund examples, and show you how to think about this across different account types. Now, I want to flag this very clearly because I'm going to revisit it in section two of this episode. You need to verify any specific fund names, expense ratios, and account limits it gives you against current sources.

14:59AI's knowledge can have a cutoff date, and a fund that existed at 0.03 % expense ratio last year may have changed. Fund names get merged. Limits get adjusted for inflation. The framework it will give you will most likely be solid, but the specific numbers you must cross-check. So with that caveat in the air, like a slightly awkward balloon hanging at a birthday party, here's the prompt you would enter here. Prompt number three, allocation strategy with fund examples, you're going to enter the following. Based on my financial profile, this would be from prompt number one, and my risk tolerance, This would be from prompt number two.

15:44Please help me build a simple diversified investment allocation strategy. Specifically, what percentage allocation across major asset classes, stocks, international stocks, bonds, alternatives, cash, makes sense for me, and why? Two, for each asset class, give me two or three specific low-cost index fund examples I could use. Please include the fund name, ticker, and approximate expense ratio, and note that I should verify these are current before buying. Three, how should this allocation differ across my different account types? For example, what goes in my 401k versus my Roth IRA versus my taxable brokerage and why?

16:334. What's the one biggest mistake someone in my situation typically makes with their allocation, and how might I avoid it? And 5. How often should I rebalance, and what should trigger me to revisit this strategy entirely? Please explain the reasoning behind each recommendation. In plain English, I want to understand the logic, not just the instructions. The reason I love this prompt specifically, is point three, the asset location question. This is one of the most underrated concepts in personal finance. Putting the right investments in the right account type can add meaningful returns without changing your allocation at all.

17:16It's free money in the most literal sense, and most people have no idea they're leaving it on the table. Step four, stress test with worst case scenarios and Monte Carlo simulations. Let's talk about Monte Carlo simulations for a second because this is something professional financial planners use routinely. And it sounds intimidating, but it's actually a very simple concept once you understand it. A Monte Carlo simulation runs your financial plan through thousands of randomly generated market scenarios. Not one version of the future, thousands of them. Some of those scenarios are great, some are terrible, some are mediocre.

17:56And at the end, you get a probability that reads something like this. Given your current savings rate, spending plan, and investment allocation, you have an 87 % chance that you won't run out of money before age 90. That's somewhat useful. That's a number you can actually do something with. And here's the thing, AI can walk you through the logic of this even if it can't run the actual simulation. But tools like Projection Lab and FireCalc, or even the retirement calculators on Vanguard's site can run through the actual numbers. And then AI can help you understand what those numbers mean and what levers to pull.

18:32So here is prompt number four for stress testing and worst case scenario planning. You're going to say the following. I want to stress test my retirement plan against realistic worst case scenarios. Here's my situation. Paste your prompt from number one. Please walk me through the following. One, what does a 2008 style sequence of return scenario look like for me? As in, if I retire in X years and the market drops 40 % in my first year of retirement, how does that affect my portfolio longevity versus a scenario where the drop happens 10 years before I retire? Two, what is a Monte Carlo simulation?

19:16And if you had to estimate my probability of a successful retirement, i.e. not running out of money by age 90. Based on my numbers, what would be your rough estimate and what assumptions are you making? Three, what are the three most dangerous assumptions in my current retirement plan, the ones that, if wrong, would cause the most damage? Four, what's the minimum savings rate I would need to feel reasonably confident about retirement given my situation? And five, if I wanted to build in a margin of safety, a buffer against bad luck, what would you suggest I adjust first? Savings rate, retirement date, expected spending, or investment allocation?

19:58The sequence of returns question in that prompt, that's genuinely important and genuinely underappreciated. Two people can have the exact same average market returns over their lifetime and end up with wildly different outcomes, depending entirely on when the bad years happen. Retiring into a bear market is devastating in a way that a bear market 10 years before retirement simply is not. This is worth understanding deeply before you get there. This week's episode is brought to you by Fabric. A friend of mine just had his second kid, and when I asked if he had term life insurance, he gave me the exact look you'd expect.

20:36The one that says, I know, I know, well clearly meaning, I have not thought about this once. He's not irresponsible. He's just busy. And this is the kind of thing that lives permanently on the to-do list next to clean out the refrigerator. But if anyone depends on your income, term life insurance isn't optional. It's the financial safety net that keeps everything intact if you're not around. That's why it sits at step four in my financial order of operations before contributing to an emergency fund, as this truly is your emergency fund. Fabric by Gerber Life lets you apply in about 10 minutes online.

21:16No health exam, no phone calls, no laminated brochures. A million dollars in coverage can run less than a dollar a day, especially if you start young. And if you're thinking, I have coverage through work, might want to check the actual number. Most employer plans cover one to two times your salary and disappear the moment you leave. 10 minutes, go to meetfabric.com slash Tyler and cross it off the list. That's meetfabric.com slash Tyler. Policies issued by Western Southern Life Assurance Company, not available in certain states, prices subject to underwriting and health questions. Step five, AI as your behavioral coach.

22:03And now my favorite part. This is the use case that I think AI is genuinely, maybe surprisingly, excellent at. And it's the one that has the biggest dollar value attached to it, which if you remember from the beginning, Vanguard put at about one and a half percent per year. Its ability to talk you out of bad decisions. The market drops, your portfolio is down 20%. Your neighbor sold everything last week and is looking very smug about it. CNBC has a countdown clock to some kind of economic catastrophe. And you're sitting there with your hand hovering over the sell button, texting your spouse something that begins with, hey, I've been thinking, this is the moment, and this is exactly when you should open an AI and type the following.

22:53Prompt number five, your behavioral guardrail. You're going to say, I need you to talk me through a financial decision I'm about to make, and I want you to be direct with me, even if that's uncomfortable. Here's my situation. You're going to describe your portfolio, your allocation, your time horizon, your financial goals. Here's what I'm thinking about doing. Describe the thing you're about to do. Sell, buy, change allocation, move to cash, etc. Here's why I want to do it. Be honest in this part. Is it fear? A tip from your buddy? The news? A gut feeling? I want you to do three things. One, tell me what the historical data says about making this kind of move at this kind of moment.

23:39Two, tell me what the argument for doing this is, because I want to hear the best case for my own decision. Three, then tell me what you actually think I should do and why don't hedge. Give me your honest read. After you do all three, ask me what would have to be true for this to be a good decision. That last prompt, the last question, what would have to be true for this to be a good decision, is one of the most useful thinking tools I know, because it forces you to articulate the actual premise of your decision. And usually, when you articulate it, you immediately realize the premise is, I'm scared, dressed up in economic language, which is not historically a great basis for portfolio decisions.

24:28A 2020 study published in the Journal of Financial Planning found that investors who sought some form of guidance or coaching before making major portfolio changes during market volatility made significantly better decisions than those who acted immediately on impulse. Now, that study was about human advisors, but the behavioral mechanism is the same. You have to externalize the decision before you make it. AI can serve that function at 2 a.m. when your advisor is asleep and the market is theoretically open in Tokyo. Which brings me to section three. These are the concerns, and they are real. Okay, I promised you balance, and here is said balance.

25:11I genuinely believe AI is useful for the things we just talked about. I use it myself, I'll say that clearly, but there are real significant concerns with using AI as your financial guide, and I want to be honest about all three of them, because ignoring them is the financial equivalent of reading only the return projections in a mutual fund prospectus and skipping the risk section, which statistically describes most mutual fund investors, so maybe that's not a strong warning, but I'm going to try anyway. Concern number one, you're giving a language model your entire financial snapshot. I know, I just told you to do this.

25:50But I want you to think for a moment about what's in these prompts I just gave you. Your age, your income, your debt, type, amount, interest rate, your account balances, your retirement savings, your financial fears, and where your money is. And I want you to think about where that information goes. Here's what I can tell you. The major AI providers, Anthropic, OpenAI, Google, have different policies about how they use conversational data. And those policies change frequently. Some of them use conversations to train future models by default. Some don't. Some offer opt-out. Some offer paid tiers with stronger data protections.

26:34You have to go read the current policy for whatever tool you're using because I cannot tell you what it says today, and even if I could, it most likely will have changed by the time you hear this. But what I can tell you is this. The people who used to email me looking for financial advice would share with me their entire financial situations without ever having connected with me once. This is not great judgment about what to put into writing on the internet to a random influencer walking through the woods of Vermont. I have received, and I kid you not, people's full account numbers, social security numbers, screenshots of brokerage statements, complete tax returns.

27:20And these are people who thought they were just asking me for basic advice without ever having met me. I'm a person with a podcast. I'm not a financial institution. I have no regulatory obligation to protect that information. Obviously, I do protect it. I just delete it because I'm a human being with a conscience. But the point is, you need to think before you share. And if you're putting what you sent to me into AI, well, I just remember, this is not some highly protected database. It's very, very public information with ever-changing rules. So at a minimum, don't ever, ever, ever, ever, ever, ever use real account numbers.

28:03Don't use your social. Don't take screenshots. Describe your situation in dollar amounts and percentages without using any identifying information. You don't even need to use the actual names of the companies you work with. You can use the enterprise or privacy focus tier of whatever tool you're using if it's available, but you also need to understand that private and secure are not the same word. So if the information you're about to type into AI would make you even remotely nervous to see on the front page of your local newspaper, just pause and reconsider what level of detail you actually need to provide.

28:41Concern number two, garbage in, garbage out, and the garbage can be dangerous. This one is more structural, and it applies to every use of AI, not just financial guidance. The prompts I gave you earlier in this episode took me time to develop. They're specific. They're structured. They force the AI to reason in a particular direction. The guidance you get from a well-constructed prompt and the guidance you get from, hey, what should I invest in, are not in the same universe of usefulness. Not even close. And here's why that matters. Vague prompts produce plausible-sounding generic advice. And plausible-sounding generic advice is not just unhelpful, it can be actively harmful.