This week's newsletter was written by Ryan Ermey, a senior reporter covering money and investing for CNBC Make It. You can follow him on Twitter @RyanErmey.
Now that ChatGPT has passed exams from law and business schools, coded well enough to be hired at Google and even penned a story for CNBC Make It, you may be convinced that it's only a matter of time before AI takes over the world.
Let's skate past the existential questions and get right to the money one: How do I invest?
One popular way is through a thematic exchange-traded fund. These ETFs invest in a basket of companies centered around a particular theme. It can range from a specific technology or business, such as cloud computing, to something as broad as the shift to working from home.
It's not hard to imagine how one of these funds could benefit your portfolio. After all, there's no shortage of people who made their fortunes by investing early in an emerging technology. And by investing in a group of these stocks rather than trying to pinpoint one, you help mitigate the risk that you're going to choose the proverbial Pets.com instead of Amazon.
Even so, the risks of investing in these funds are very real.
For one thing, diversification within a particular theme won't do you much good if the whole theme takes a hit. Just ask investors who held blockchain-themed ETFs in 2022.
What's more, thematic ETFs tend to charge higher expense ratios than broader-based strategies.
That's why you'd be wise to treat any thematic ETF as a complement to a broadly diversified core portfolio strategy, says Todd Rosenbluth, head of research at research firm VettaFI.
"This should serve as a 'satellite' position or a slice of a broader portfolio. We tend to see investors putting 5% to 10% of their equity allocation toward higher-risk, high-reward thematic ETFs."
