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I’ve built a portfolio of mostly FTSE 100 stocks inside a Self-Invested Personal Pension (SIPP) and, mostly, I’m happy with it.
But now I’m wondering whether it’s fit for purpose. So I asked ChatGPT to produce the ‘perfect’ blend of mostly dividend income-paying stocks for someone retiring within a decade.
I’ve learned to approach artificial intelligence (AI) carefully. No investor should use it to select stocks, often the information it comes up with is out of date, with potential risks omitted. Human intelligence is essential.
AI picked Legal & General shares
ChatGPT assured me I’d asked a “great question”. I’ve also learned to take its flattery with a pinch of salt.
It initially came up with five stocks, when I’d asked for 10. Ho hum. Top of the list was Legal & General Group (LSE: LGEN), which it described as a “high-yield financial/insurance business and one of the top dividend payers in the FTSE 100”.
I can’t argue with its choice, given that I hold it. Today, it has a trailing yield of 9%, which is massive.
My robot buddy calls it a “compelling pick” for my SIPP as its business model provides stable cash generation, which supports its generous payout. “That’s attractive given your goal of income in retirement”, it said.
At my request, it supplied three risks. First, it warned that high yields can be difficult to fund, especially if earnings drop. Second, insurance businesses are also exposed to long-term liabilities, regulation and market risk. Third, dividend sustainability depends on the group maintaining cash flow, so monitor its financials. All three are totally generic and tell me little.
Unbalanced portfolio
It didn’t mention Legal & General’s dismal share price performance. While it’s up 8.4% in the last year, the shares trade slightly lower than 10 years ago. I still think it’s worth considering, for income if not growth.
ChatGPT then recommended two very similar stocks from the financials sector – wealth manager M&G and life and retirement insurer Phoenix Group Holdings. Both also offer super-high yields, but in a five-stock portfolio this is way too much concentration. There’s a reason I wouldn’t rely on a Chatbot to plan my future.
It also highlighted British American Tobacco, which is hard to argue against, given its brilliant long-term track record of supplying income and growth. Then ended with one I’ve never even considered: Foresight Environmental Infrastructure Trust. This is a FTSE 250 investment trust focused on environmental infrastructure with an ultra-high 11% yield. ChatGPT doesn’t mention the shares are down 15% in the last year and 48% over three. Sounds risky to me.
Five shares isn’t enough for a balanced portfolio, especially since three come from one sector and another is supremely risky. So I asked for five more and it came up with the old favourites – Shell, Unilever, National Grid, AstraZeneca and Rio Tinto.
It’s not a bad selection, offering both income and growth, although I’m not a huge fan of Unilever and National Grid.
ChatGPT doesn’t produce its own ideas, it just scours the internet for information researched by actual humans. Investors should always do their own research. This isn’t a bad portfolio, but I can see more exciting FTSE 100 income stocks out there, while there’s one or two here I just won’t touch.
