Saturday Oct 31, 2026
Saturday Oct 31, 2026
Friday, 30 October 2026 14:49 - - {{hitsCtrl.values.hits}}
By Madhuri Peiris
Do you remember this old idea: set something aside today so that tomorrow is less uncertain. Today, that message meets a new kind of excitement. Vast sums of money are pouring into artificial intelligence, from data centres and computer chips to the companies building software on top of them. Stock markets have rewarded the enthusiasm. Yet the question hanging over the boom is simple: will the profits eventually justify the spending?
Investment on this scale rests on a promise that AI will transform productivity and generate lots of future earnings. That may well prove true. But history shows that powerful technologies and overheated markets often travel together. The railways, electricity and the early internet all changed the world, and all were accompanied by periods when prices ran far ahead of reality.
Official warnings are growing. In its October financial stability assessment, the International Monetary Fund listed a possible correction in AI-related markets among several risks to the stability of the global financial system. That is not a prediction of a crash, and nobody can time such events. But it is a reminder that when a large share of market value is tied to one theme, a change in sentiment can ripple outward.
It is easy to treat market turbulence as a problem for professional traders. In reality, most people are exposed to it indirectly. Pension funds, provident funds and unit trusts often hold shares in the very companies at the centre of the AI story. If those valuations fall sharply, retirement balances can fall with them.
The danger is greatest for people close to retirement. A 30-year-old has decades to recover from a downturn. Someone planning to retire in three years does not. A sharp fall just before withdrawals begin can permanently reduce the income a lifetime of saving was meant to provide. This is why the age at which you invest, and the time you have to recover, matter as much as which assets you choose.
Diversification. Spreading money across different types of assets, such as shares, bonds, cash and property, and across different countries and industries, means no single disappointment can do too much damage. If a large part of your savings quietly depends on one theme, however exciting, you are not diversified. Even broad market funds can end up heavily weighted towards a handful of dominant technology firms, so it is worth checking what you actually own.
Risk tolerance. This has two parts. Your capacity for risk is financial: how much loss you could absorb without disrupting your life. Your willingness for risk is emotional: how you would feel and behave when your savings drop by a fifth. Many people overestimate the second during good times. An investment you would panic-sell in a downturn is too risky for you, however good its long-term record.
Emergency savings. Before chasing returns, build a cushion, commonly suggested at three to six months of essential expenses, held somewhere safe and easy to reach. This fund is not meant to earn much. It exists so that a job loss or medical bill never forces you to sell investments at the worst moment. In uncertain times, it may be the most valuable asset you own.
Many of us now use AI tools in daily life, and personal finance is a natural place to apply them. But there is an important difference between two very different uses.
Using AI to organise your finances is practical and low-risk. It can help you categorise spending, build a monthly budget, explain unfamiliar terms like “expense ratio” or “compound interest”, compare the structure of two savings options, or draft a list of questions for a bank. Here the tool is working with your own information, and you can check its output against your statements.
Trusting an AI-generated investment recommendation is something else entirely. An AI system does not know your full circumstances, your family obligations, or how you would truly react to losses. It cannot be held accountable if its suggestion goes wrong. It may also present uncertain judgements in a confident tone, or rely on information that is out of date. A recommendation about where to put your retirement savings is a decision with long-lasting consequences, and it deserves more than a polished paragraph on a screen.
Good financial decisions are rarely about finding the cleverest prediction. They are about matching your money to your life: your goals, your timeline, your responsibilities and your temperament. A licensed, independent adviser can weigh these things, challenge your assumptions and, just as importantly, stop you making quick decisions in the heat of a market panic. Trusted family members and your own common sense also have a role.
Human judgement also includes knowing the limits of what you understand. If you cannot explain an investment in plain words, you probably should not own it.
Thrift does not mean avoiding all risk or distrusting every new technology. AI may indeed deliver remarkable benefits, and measured participation in markets is part of building long-term wealth. But thrift does mean preparing for the possibility that things do not go as planned.
Markets will rise and fall, and technologies will come and go. The people who weather the storms are usually those who saved steadily, spread their risk, kept something in reserve, and thought carefully before acting.
