Latest / Credit Matters Podcast / What to do before the AI bubble pops

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What to do before the AI bubble pops · Credit Matters Podcast

• 0:06
  Speaker 1: If your money is in the stock market, the AI
• 0:08
  Speaker 1: bubble has put one question in front of you. Do
• 0:11
  Speaker 1: you sell now or do you stay invested? So let's
• 0:14
  Speaker 1: follow three people who made three very different choices and
• 0:17
  Speaker 1: see which one you would want to be.
• 0:19
  Speaker 2: Cole, Darius, and Marcus are about the same age.
• 0:24
  Speaker 1: Each of them has $ 200, 000 invested, built up over years
• 0:27
  Speaker 1: of steady saving. Then AI stocks start to fall. Chip
• 0:32
  Speaker 1: stocks have one of their worst weeks in years, and
• 0:34
  Speaker 1: the word everyone is typing into their search bar is bubble.
• 0:39
  Speaker 2: Cole does what his gut tells him.
• 0:41
  Speaker 1: He sells everything, every fund and every share, and moves
• 0:44
  Speaker 1: it all into cash. He tells himself he will buy
• 0:47
  Speaker 1: back in once things calm down. For the first time
• 0:50
  Speaker 1: in weeks, he sleeps well. Darius does the opposite. He
• 0:54
  Speaker 1: doesn't own a single AI stock, he says. He owns
• 0:57
  Speaker 1: an S & P 500 index fund, the most boring
• 1:01
  Speaker 1: and most diversified thing you can buy. The headlines are
• 1:05
  Speaker 1: about chip companies, not about him. At least that's what
• 1:08
  Speaker 1: he thinks. So he does nothing. Marcus doesn't sell, and
• 1:12
  Speaker 1: he doesn't sit still either. He makes one quiet change
• 1:15
  Speaker 1: to his portfolio, and then he keeps investing every month
• 1:18
  Speaker 1: as if nothing happened. Here is the uncomfortable part. Cole's
• 1:21
  Speaker 1: plan only works if he gets the timing right twice,
• 1:24
  Speaker 1: once on the way out and once on the way
• 1:26
  Speaker 1: back in, and history has a brutal record on that
• 1:29
  Speaker 1: second decision. And that boring index fund Darius trusts, it's
• 1:33
  Speaker 1: carrying far more of the AI bet than he realizes.
• 1:36
  Speaker 1: Some of the exact companies in those headlines are among
• 1:39
  Speaker 1: the biggest things he owns. So we're going to run
• 1:41
  Speaker 1: the real math on all three. Not in one future,
• 1:44
  Speaker 1: but in two. One where the AI bubble pops, and
• 1:48
  Speaker 1: one where it doesn't. Nobody can tell you which one
• 1:51
  Speaker 1: is coming. What the numbers can show you is which
• 1:53
  Speaker 1: of these three decisions holds up either way. And it
• 1:56
  Speaker 1: isn't the one that felt the safest. Before we follow them,
• 2:04
  Speaker 1: it helps to know what is actually spooking investors, because
• 2:07
  Speaker 1: it isn't what most people assume. Over the last few years,
• 2:11
  Speaker 1: a small group of giant companies has spent enormous sums
• 2:14
  Speaker 1: building artificial intelligence. The chips, the data centers, and the
• 2:19
  Speaker 1: electricity to run them. Investors loved it, and the share
• 2:22
  Speaker 1: prices of those companies climbed far faster than almost anything
• 2:26
  Speaker 1: else in the market. The fear now isn't that AI
• 2:29
  Speaker 1: doesn't work. It's how the whole build-out is being paid for.
• 2:33
  Speaker 1: A growing share of it runs on borrowed money, and
• 2:36
  Speaker 1: when interest rates rise, borrowed money gets more expensive. Higher
• 2:40
  Speaker 1: costs mean slower profits, and slower profits make investors nervous.
• 2:44
  Speaker 1: That's how a boom turns into a bubble conversation. When
• 2:47
  Speaker 1: that fear hits, it hits the chip makers first. A
• 2:50
  Speaker 1: basket of the biggest chip stocks lost almost 12% in
• 2:52
  Speaker 1: a single week. Over the same week, the wider S
• 2:55
  Speaker 1: & P 500 fell only about 2%. And that gap
• 2:59
  Speaker 1: is exactly what fools people. Because if you own a
• 3:01
  Speaker 1: regular index fund, a chip sell-off looks like somebody else's problem.
• 3:05
  Speaker 2: Darius certainly thinks so.
• 3:07
  Speaker 1: To see why he might be wrong and why Cole
• 3:09
  Speaker 1: might be wrong in a completely different way, we need
• 3:11
  Speaker 1: to look closely at what each of them did. And
• 3:14
  Speaker 1: we'll start with the move that feels the smartest. Cole's
• 3:21
  Speaker 1: logic is simple. And honestly, it isn't crazy. If prices
• 3:27
  Speaker 1: might fall, get out first. Sit in cash, sleep well,
• 3:32
  Speaker 1: and buy back in once the storm passes. In the
• 3:35
  Speaker 1: short run, it feels fantastic. Every red day on the
• 3:38
  Speaker 1: news is a day he didn't lose a dollar.
• 3:41
  Speaker 2: His friends are anxious. He isn't. But selling isn't one decision.
• 3:45
  Speaker 2: It's two.
• 3:46
  Speaker 1: The first is when to get out, and he has
• 3:48
  Speaker 1: already made that one. The second is when to get
• 3:51
  Speaker 1: back in, and that one comes with no signal at all.
• 3:54
  Speaker 1: Nobody rings a bell when the danger is over. Buying
• 3:57
  Speaker 1: back once things calm down sounds like a plan, but
• 4:00
  Speaker 1: calm usually only shows up in hindsight, after prices have
• 4:03
  Speaker 1: already climbed. And before he even gets to that second decision,
• 4:06
  Speaker 1: there's a cost he didn't think about when he clicked sell.
• 4:14
  Speaker 1: Of his $ 200, 000, about $ 130, 000 was money Cole put in
• 4:15
  Speaker 1: himself over the years. The other $ 70, 000 is profit. And
• 4:23
  Speaker 1: the moment he sells, that profit becomes taxable. For most
• 4:26
  Speaker 1: people on a normal salary, profits on investments held for
• 4:29
  Speaker 1: more than a year are taxed at 15% at the
• 4:32
  Speaker 1: federal level. 15% of $ 70, 000.
• 4:34
  Speaker 2: Is $ 10, 500.
• 4:35
  Speaker 1: That money is gone before his cash has earned a
• 4:40
  Speaker 1: single cent. And depending on where he lives, his state
• 4:42
  Speaker 1: may want to share as well. Then there's the cash itself.
• 4:46
  Speaker 1: The best savings accounts pay a little over 4%. but
• 4:49
  Speaker 1: that interest is taxed like his paycheck, so it works
• 4:52
  Speaker 1: out to about 3.5%. That isn't terrible, but over long stretches,
• 4:57
  Speaker 1: stocks have earned far more, and every month he waits,
• 5:00
  Speaker 1: the gap grows. Still, the biggest risk to Cole isn't
• 5:03
  Speaker 1: the tax or the interest rate. It's the handful of
• 5:06
  Speaker 1: days he might not be there for.
• 5:13
  Speaker 2: J.P. Morgan has tracked this for years. $ 10, 000 left.
• 5:16
  Speaker 1: In the S & P, 500 from 2006 to the
• 5:19
  Speaker 1: end of 2025 grew to about $ 80, 600. Missed just the
• 5:20
  Speaker 1: 10 best days in those 20 years, and it finished
• 5:22
  Speaker 1: at about $ 35, 900. 10 days out of roughly 5,000 trading days,
• 5:23
  Speaker 1: and more than half the money was gone. Here's the
• 5:26
  Speaker 1: cruel part. Seven of those 10 best days came within
• 5:29
  Speaker 1: 15 days of one of the 10 worst. The biggest
• 5:44
  Speaker 1: rebounds arrive right in the middle of the panic, exactly
• 5:47
  Speaker 1: when people like Cole are sitting in cash waiting for
• 5:50
  Speaker 1: things to feel calm. So the path to success for
• 5:53
  Speaker 1: a seller is narrow. You have to be out for
• 5:56
  Speaker 1: the fall and back in before the bounce. History says
• 5:59
  Speaker 1: that second step is where most people slip, which might
• 6:02
  Speaker 1: make Darius look like the sensible one. He didn't sell.
• 6:06
  Speaker 1: He didn't panic. He just held his index fund. But
• 6:09
  Speaker 1: he has a problem too, and it's sitting inside the
• 6:12
  Speaker 1: very fund he trusts.
• 6:18
  Speaker 2: An S & P.
• 6:19
  Speaker 1: 500 fund owns 500 of America's biggest companies. That sounds
• 6:25
  Speaker 1: like the definition of spread out, but the fund doesn't
• 6:27
  Speaker 1: put the same amount into each company. It invests by size.
• 6:31
  Speaker 1: The bigger the company, the bigger its slice. In October 2026,
• 6:35
  Speaker 1: the 10 largest companies made up about 39% of the
• 6:38
  Speaker 1: whole index.
• 6:39
  Speaker 2: So of Darius's $ 200, 000, roughly 78,000 sits in just 10 companies.
• 6:48
  Speaker 1: Three of them alone, NVIDIA, Apple, and Microsoft, account for
• 6:53
  Speaker 1: around $ 40, 000 of it.
• 6:55
  Speaker 2: These are the companies at the center of the AI story.
• 6:58
  Speaker 1: As their prices soared, they took over more and more
• 7:01
  Speaker 1: of the index. That's how a fund bought for safety
• 7:04
  Speaker 1: quietly became one of Darius's biggest bets on AI. For comparison,
• 7:09
  Speaker 1: at the peak of the dot-com bubble, the 10 biggest
• 7:12
  Speaker 1: companies made up about 27% of the index.
• 7:15
  Speaker 2: Today's figure is well above that.
• 7:17
  Speaker 1: So what happened the last time the index leaned this
• 7:20
  Speaker 1: heavily on a few giants? In March 2000, the S
• 7:28
  Speaker 1: & P.
• 7:29
  Speaker 2: 500 hit a record.
• 7:31
  Speaker 1: Over the next two and a half years, it fell 49%,
• 7:34
  Speaker 1: almost half its value, and it didn't get back to
• 7:37
  Speaker 1: that peak until 2007, about seven years later. Even with
• 7:41
  Speaker 1: dividends counted, investors were down about 42% at the worst point,
• 7:46
  Speaker 1: and they needed just over six years to break even.
• 7:49
  Speaker 1: Plenty of people who owned the index back then believed
• 7:52
  Speaker 1: they were diversified, too. They owned 500 companies. But when
• 7:57
  Speaker 1: the biggest companies in an index fall the hardest, owning
• 8:00
  Speaker 1: the index means falling with them. Now, none of this
• 8:04
  Speaker 1: means a crash is coming. Today's giants earn real profits,
• 8:07
  Speaker 1: which many dot-com companies never did.
• 8:10
  Speaker 2: But it does mean Darius is carrying more risk than
• 8:13
  Speaker 2: he realizes. And it raises an obvious question.
• 8:16
  Speaker 1: If Cole is too jumpy and Darius is too relaxed,
• 8:19
  Speaker 1: is selling ever actually the right call? To be fair,
• 8:27
  Speaker 1: there are times when getting out is the right move.
• 8:30
  Speaker 1: Here are the honest ones. First, if you need the
• 8:33
  Speaker 1: money soon. If this is a house deposit or a
• 8:36
  Speaker 1: tuition bill due in the next couple of years, it
• 8:38
  Speaker 1: probably shouldn't be in stocks in the first place.
• 8:40
  Speaker 2: Bubble or no bubble.
• 8:41
  Speaker 1: Second, if you're concentrated in a handful of individual AI
• 8:45
  Speaker 1: stocks rather than a broad fund. Trimming one position that
• 8:48
  Speaker 1: has grown into a huge share of your wealth isn't panic.
• 8:52
  Speaker 2: It's housekeeping.
• 8:53
  Speaker 1: And third, if you know a big drop would scare
• 8:56
  Speaker 1: you into selling at the bottom anyway. In that case,
• 8:58
  Speaker 1: it's far better to fix your mix now, while you're calm,
• 9:01
  Speaker 1: than in the middle of a crash.
• 9:03
  Speaker 2: Notice that none of these is about predicting the bubble.
• 9:06
  Speaker 1: They're about your own situation, and none of them describes Cole,
• 9:10
  Speaker 1: who sold everything after one bad stretch of headlines. So
• 9:13
  Speaker 1: let's stop guessing and run the numbers using two stories
• 9:16
  Speaker 1: and the same three people, starting from exactly the same place.
• 9:25
  Speaker 2: Here's how we keep it fair.
• 9:26
  Speaker 1: Cole, Darius and Marcus each start with $ 200, 000 and each
• 9:30
  Speaker 1: adds $ 1, 000 a month for.
• 9:32
  Speaker 2: The next 20 years.
• 9:34
  Speaker 1: That's $ 240, 000 more of their own money, the same for everyone.
• 9:39
  Speaker 1: Cole sells everything today, pays his $ 10, 500 tax bill, and
• 9:43
  Speaker 1: keeps his cash and his monthly savings in a savings
• 9:45
  Speaker 1: account until he decides it's safe to buy back in.
• 9:48
  Speaker 1: Darius stays fully in his S & P 500 fund
• 9:51
  Speaker 1: and keeps buying every month. And Marcus makes his one
• 9:55
  Speaker 1: quiet change. Half his money stays in the same fund
• 9:58
  Speaker 1: as Darius and the other half moves into a fund
• 10:00
  Speaker 1: that's built differently. Exactly what that fund is and why
• 10:05
  Speaker 1: it matters so much, we'll get to after the race.
• 10:08
  Speaker 2: Then we play it out twice.
• 10:10
  Speaker 1: First in the story where the AI bubble pops, then
• 10:12
  Speaker 1: in the story where it keeps going. In this story,
• 10:20
  Speaker 1: the market follows a path a lot like the last
• 10:23
  Speaker 1: big bubble.
• 10:23
  Speaker 2: Over about two and a.
• 10:24
  Speaker 1: Half years, the S & P 500 falls about 42%,
• 10:27
  Speaker 1: the same drop investors lived through after.
• 10:30
  Speaker 2: The dot-com peak once dividends are counted.
• 10:33
  Speaker 1: Then it slowly climbs back, reaching its starting level after
• 10:37
  Speaker 1: about six years. From there, it grows at about 10%
• 10:41
  Speaker 1: a year, slightly less than what it actually returned over
• 10:44
  Speaker 1: the last two decades. After one year, Cole looks like
• 10:47
  Speaker 1: a genius. His account is at about $ 208, 000. Darius has
• 10:50
  Speaker 1: fallen to about $ 172, 000. Marcus sits in between at about $ 180, 000.
• 10:54
  Speaker 2: Then it gets worse.
• 10:54
  Speaker 1: At the bottom, two and a half years in, Darius
• 10:57
  Speaker 1: is down to about $ 139, 000, even after all the money
• 10:59
  Speaker 1: he's added. Marcus has fallen to about $ 156, 000. And coal
• 11:15
  Speaker 1: is sitting on about $ 237, 000.
• 11:18
  Speaker 2: All of it safe in cash.
• 11:20
  Speaker 1: If you stopped watching here, the seller wins, and it
• 11:23
  Speaker 1: isn't even close. This is the moment every seller dreams about.
• 11:27
  Speaker 1: But the race isn't over, because something is happening underneath
• 11:30
  Speaker 1: that coal can't see. Every month, Darius and Marcus have
• 11:34
  Speaker 1: been buying at lower and lower prices. Every $ 1, 000 they
• 11:38
  Speaker 1: invest near the bottom buys far more of the market
• 11:41
  Speaker 1: than it did a year earlier.
• 11:42
  Speaker 2: Those cheap shares are about to matter.
• 11:45
  Speaker 1: At year five, coal still leads with about $ 289, 000.
• 11:49
  Speaker 2: Marcus is close behind at about.
• 11:51
  Speaker 1: $ 269, 000, and Darius has climbed back to about $ 238, 000. Then,
• 11:58
  Speaker 1: about six years in, the market finally gets back to
• 12:01
  Speaker 1: where coal sold. This is his calm. This is the
• 12:04
  Speaker 1: moment he buys back in. And when he does, he
• 12:07
  Speaker 1: discovers that something has already happened. Marcus has passed him.
• 12:11
  Speaker 1: At that point, the quiet investor is at about $ 335, 000.
• 12:15
  Speaker 2: While Cole is at about $ 315, 000.
• 12:16
  Speaker 1: The person who made no dramatic move at all is
• 12:21
  Speaker 1: now ahead of the person who dodged the entire crash.
• 12:24
  Speaker 2: From there, the gap only grows. At year 20, Marcus
• 12:29
  Speaker 2: finishes with about $ 1.
• 12:30
  Speaker 1: 59 million.
• 12:30
  Speaker 2: Cole ends with about $ 1. 52 million. And Darius, who took the.
• 12:33
  Speaker 1: Full force of the crash, finishes last with about 1.46 million.
• 12:42
  Speaker 1: So in the story where the bubble pops, Marcus wins,
• 12:46
  Speaker 1: and the man who never moved comes last.
• 12:48
  Speaker 2: That's roughly what you'd expect.
• 12:50
  Speaker 1: But the second story flips almost everything, and one of
• 12:52
  Speaker 1: these three is about to go from last place to first.
• 13:01
  Speaker 2: In this story, there is no crash.
• 13:03
  Speaker 1: The AI giants keep delivering, and the market grows about
• 13:06
  Speaker 1: 10% a year every year. And to be completely fair,
• 13:10
  Speaker 1: we'll assume the broader half of Marcus's money grows a
• 13:13
  Speaker 1: little slower here, half a percentage point a year less,
• 13:17
  Speaker 1: because the biggest companies keep leading.
• 13:19
  Speaker 2: Cole sells, pays his tax, and waits. Nothing bad happens.
• 13:25
  Speaker 1: After six months of watching the market climb without him,
• 13:28
  Speaker 1: He gives up and buys back in at prices almost
• 13:32
  Speaker 1: 5% higher than where he sold. After one year, Darius
• 13:36
  Speaker 1: is at about $ 233, 000.
• 13:37
  Speaker 2: Marcus is right beside him at about $ 232, 000. Cole trails
• 13:39
  Speaker 2: at about $ 215, 000.
• 13:39
  Speaker 1: He has already lost his tax bill and half a
• 13:42
  Speaker 1: year of growth. At year 10, Darius has about $ 719, 000.
• 13:56
  Speaker 1: Marcus has about $ 704, 000.
• 13:59
  Speaker 2: Cole has about $ 676, 000. And at.
• 14:03
  Speaker 1: Year 20, Darius finishes first with about $ 2.
• 14:06
  Speaker 2: 06 million.
• 14:08
  Speaker 1: Marcus finishes second with about $ 1.
• 14:09
  Speaker 2: 98 million.
• 14:12
  Speaker 1: Cole finishes last with about $ 1. 95 million. So now Darius wins,
• 14:17
  Speaker 1: and the seller comes last. The man who sat perfectly
• 14:20
  Speaker 1: still beats everyone. And the man who sold to stay
• 14:23
  Speaker 1: safe in a story where there was nothing to be
• 14:26
  Speaker 1: safe from, pays for that fear with about $ 110, 000. But
• 14:32
  Speaker 1: look at Marcus. He didn't win this story. He didn't
• 14:35
  Speaker 1: win every year of the first one either. And that
• 14:37
  Speaker 1: turns out to be the whole point.
• 14:44
  Speaker 2: Let's put the two stories side by side.
• 14:47
  Speaker 1: If the bubble pops, Marcus finishes first, Cole second, and
• 14:51
  Speaker 1: Darius last.
• 14:53
  Speaker 2: If it keeps going, the order turns upside down.
• 14:56
  Speaker 1: The man at the bottom of the first story finishes
• 14:58
  Speaker 1: on top, the quiet investor holds second place, and the
• 15:02
  Speaker 1: seller drops to last.
• 15:04
  Speaker 2: Look at the one who stood still. Darius is either
• 15:08
  Speaker 2: the winner or.
• 15:09
  Speaker 1: The loser, and the difference between his two endings is
• 15:11
  Speaker 1: about $ 600, 000. That's a coin flip with your future. Cole
• 15:16
  Speaker 1: looks safe, but his result depends entirely on timing. And
• 15:20
  Speaker 1: in the crash story, we gave him perfect timing. He
• 15:23
  Speaker 1: bought back in at exactly the price he sold. Real
• 15:27
  Speaker 1: life is rarely that kind. If he had waited just
• 15:29
  Speaker 1: one more year to feel sure, he would have finished
• 15:32
  Speaker 1: with about $ 1.
• 15:34
  Speaker 2: 45 million and come last.
• 15:35
  Speaker 1: Behind even Darius, wait two years, and he'd be down
• 15:39
  Speaker 1: to about $ 1.
• 15:40
  Speaker 2: 38 million. The same is true in the other story.
• 15:43
  Speaker 1: If he'd stayed out for a full year instead of
• 15:45
  Speaker 1: six months, he'd finish at about $ 1. 91 million. Stay out
• 15:48
  Speaker 1: for two years, and it's about 1.84 million. Marcus never
• 15:52
  Speaker 1: had to time anything. And when we checked the end
• 15:54
  Speaker 1: of every single year in both stories, he was never.
• 15:58
  Speaker 2: In last place. Not once.
• 16:00
  Speaker 1: That's what holding up either way really means. Not winning
• 16:03
  Speaker 1: every race, but never losing badly in any of them.
• 16:06
  Speaker 1: And the one who felt the safest, Cole, turns out
• 16:09
  Speaker 1: to be the one whose result depends most on luck.
• 16:12
  Speaker 1: So what exactly was Marcus's one quiet change? He looked
• 16:21
  Speaker 1: at his S & P 500 fund and asked a
• 16:23
  Speaker 1: question most people never ask. How much of this is
• 16:27
  Speaker 1: really just a few companies? When he saw that nearly
• 16:29
  Speaker 1: 40 cents of every dollar sat in 10 of them,
• 16:32
  Speaker 1: he didn't sell.
• 16:34
  Speaker 2: He spread out.
• 16:35
  Speaker 1: He moved half of his money into a fund that
• 16:37
  Speaker 1: owns the same 500 companies, but gives each one roughly
• 16:40
  Speaker 1: the same slice.
• 16:42
  Speaker 2: It's usually called an equal weight fund.
• 16:44
  Speaker 1: In that kind of fund, no single company can take over,
• 16:47
  Speaker 1: no matter how big it gets.
• 16:48
  Speaker 2: Here's why that matters.
• 16:50
  Speaker 1: In the 10 years after the dot-com peak, the equal
• 16:53
  Speaker 1: weight version of the S & P 500 gained about
• 16:56
  Speaker 1: 65% in total, while the regular index lost about 9%.
• 17:01
  Speaker 1: Same companies, completely different results, purely because of how the
• 17:05
  Speaker 1: money was spread. In our crash story, we assumed something
• 17:09
  Speaker 1: much milder than that. We assumed his broader half fell
• 17:12
  Speaker 1: about a quarter instead of 42%, and that by the
• 17:15
  Speaker 1: time the regular index got back to even... It was
• 17:19
  Speaker 1: up about a third. That's a smaller advantage than history
• 17:23
  Speaker 1: actually delivered. Then he simply kept doing what he was
• 17:26
  Speaker 1: already doing, investing every month, whatever the headlines said. That's
• 17:30
  Speaker 1: what turned the crash into an opportunity instead of a disaster.
• 17:35
  Speaker 1: This isn't a recommendation to buy any one particular fund.
• 17:38
  Speaker 1: The point is the principle. If your safe fund has
• 17:41
  Speaker 1: quietly turned into a bet on a handful of companies,
• 17:44
  Speaker 1: you can spread out without ever leaving the market. Your
• 17:52
  Speaker 1: numbers won't match Kohl's, Darius's, or Marcus's. Your balance is different.
• 17:57
  Speaker 1: How much of it is profit is different. Your tax
• 18:00
  Speaker 1: rate is different. And so is how long you'd honestly
• 18:03
  Speaker 1: sit in cash before buying back in. That's why I
• 18:06
  Speaker 1: built the sell now versus stay invested calculator. You enter
• 18:09
  Speaker 1: your own balance, what you've paid in, your tax rate,
• 18:13
  Speaker 1: and how long you think you'd stay out. And it
• 18:15
  Speaker 1: shows you all three paths in both stories, the crash
• 18:18
  Speaker 1: and the climb. So you can see which choice holds
• 18:21
  Speaker 1: up for you. It's in the calculator vault for members
• 18:23
  Speaker 1: of the Wealth Logicians alongside every other calculator from this channel.
• 18:27
  Speaker 2: The link is in the description.