In the early 19th century, pioneers such as Charles Babbage, Joseph Marie Jacquard, and Ada Lovelace conceived of ideas that would provide the framework for the modern computer.
The likes of Alan Turing, John Atanasoff, and Clifford Berry built on these early ideas in the first half of the 20th century, as early, albeit inconveniently massive, computers began to be used.
Their creations would help influence the imaginations of great science fiction writers such as Isaac Asimov and Philip K. Dick as the concept of artificial intelligence (AI) and synthetic life began to filter into popular culture.
The 70s and 80s would see the boom of technology companies like Apple, IBM, and Microsoft. The 90s brought about the advent of the internet that connected the world.
In just over 200 years, the benefits of our technological revolution have seen the world rapidly change as computers and AI have emerged within all walks of life. Some scientists have their concerns though.
It is a high-risk investment in the advancement of our species, which in turn might provide some unconventional but valuable lessons about the nature of risk versus reward.
Read on to discover what we can learn from the dilemma that is the race towards “true” AI, and its possible implications, about how to approach high-risk investing decisions.
AI advancements offer potentially greater returns in exchange for added risks
True AI, also known as “artificial general intelligence” (AGI), is technically defined as a machine that has the capacity to understand or learn intellectual tasks to the same or better aptitude as humans.
The majority of modern AIs are highly specialised in their roles. A true AI is limitless and has the ability to change and grow, just as we do.
New Scientist reports that 36% of surveyed AI researchers believe that AI could eventually cause a global catastrophe on the scale of an all-out nuclear war.
It’s a daunting scenario that might have you second guessing your most recent iPhone purchase.
It is also reminiscent of films like The Matrix and Terminator that offer worrying, post-apocalyptic depictions of a world where advancing AI is left to run amok.
But beyond the worst-case scenario of our robotic creations breaking free of their programming, overthrowing our species, and leading us towards the apocalypse — advancing AI does pose some real-world predicaments for our society in the near future.
Going out with a whimper or a bang
Computer scientist Paul Christiano outlined two scenarios in a recent interview with Vox magazine — going out with a whimper and going out with a bang.
Going out with a whimper is something that is already in progress within our society, as automation phases out the necessity for human involvement in certain industries and jobs.
As AI continues to progress, we will likely find ourselves ceding more and more of our authority and involvement in society to our AI creations.
Going out with a bang is the more violent and scarier outcome, but before we reach apocalyptic annihilation, there are smaller scale ways we could see this negative influence in our society.
These might include the increased use and visibility of autonomous weapons in police or military situations, biased AI programs conducting surveillance or background checks, deepfake audio-visual productions spawning fake news and propaganda, or widespread privacy and security issues.
It is a lot of risk to undertake, but as we can see from how our society has rapidly progressed over the last 50 years, it has the potential for significant rewards.
AI progression could see a further dissemination of information across the globe, automation of high-risk industries that are susceptible to human error, new life-saving technologies, and possible AI-focused solutions to global issues like food shortages or climate change — the rewards could be considerable.
So, how does the issue of AI relate to your approach to high-risk investments?
The risk versus reward approach of AI progression and high-risk investing
Machines work from information. While their decisions are logical and lack emotion, humans are storytellers, and we can often benefit from a narrative or an analogy to help shape our decision-making process.
The future of AI and its implications lay out the high-stake pros and cons involved, just as approaching investing in a financial vehicle like the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCTs) can offer the potential for financial gain but with the possibility of losses.
If you’ve worked with a financial planner, you probably have a diversified portfolio of investments that is seeing some kind of growth over time. So, why would you want to pursue the extra risk and the potential for losses that may come with EIS or VCT investments?
AI performs a role in our society already, as it automates many functions and has helped technology filter down into our everyday lives. If you weigh up all the scary possibilities that may occur from advancing AI further towards reaching true AI, you may lose sight of the fact that AI has the potential to change lives for the better and solve problems that are beyond our human limitations.
As with AI, taking on high-risk investments adds the potential for your losses and for you to find yourself in a worse situation than when you started.
However, as with chasing those AI gains, it is a risk versus reward situation in which if your EIS or VCT investment is successful, you could yield gains.
EIS and VCTs offer the chance for sizeable gains and significant tax relief in exchange for added risk
So, what exactly are the EIS and VCTs? As mentioned, they are higher-risk investments, because they are typically made up of portfolios of fledgling companies that are seeking finance to achieve further growth.
The portfolios are floated like stocks and can see major growth if any of the companies that are part of their makeup achieve significant success. Some examples of successful businesses to emerge from such investments are Zoopla, Five Guys, and Everyman Cinemas.
They both have the added bonus of associated tax relief that can make them extra desirable to potential investors and might mean they are the right move for you even if they don’t end up raking in massive gains. The tax relief could save you a lot of money on Income and Capital Gains Tax.
However, due to the nature of the companies that make up their portfolios, EIS and VCTs can be especially volatile. If the young businesses involved fail and collapse, which can often happen with new firms, so too can the overall fund, which would likely see you lose some or all of your investment.
As with the race towards true AI, you should approach high-risk investments with caution. You should understand all the potential issues that may present themselves and seek professional advice before making any decisions, just as leading scientists and lawmakers supervise the steps of our technological progress.
However, as stressful as both scenarios might seem at first glance, the rewards of a vastly improved society or in terms of the growth in your finances (considerable financial gain and significant tax relief), it is understandable why some choose to pursue such a venture.
In an article all about machines, it ultimately comes down to the person. You need to assess your own personal tolerance for risk and whether the pursuit of greater wealth is worth it in regards to your long-term goals.
Get in touch
High-risk investing is not a decision to be taken lightly. It is vital that you fully understand the risks and discuss any plans with your financial planner.
Contact us by email at mail@delaunaywealth.com or call us on 0345 505 3500 to seek further insights into the subject and whether it is the right move for you.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
Enterprise Initiative Schemes (EIS) and Venture Capital Trusts (VCT) are higher-risk investments. They are typically suitable for UK-resident taxpayers who are able to tolerate increased levels of risk and are looking to invest for five years or more. Historical or current yields should not be considered a reliable indicator of future returns as they cannot be guaranteed.
Share values and income generated by the investments could go down as well as up, and you may get back less than you originally invested. These investments are highly illiquid, which means investors could find it difficult to, or be unable to, realise their shares at a value that’s close to the value of the underlying assets.
Tax levels and reliefs could change and the availability of tax reliefs will depend on individual circumstances.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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