The US stock market was very jittery last week and we saw a bit of a sell off. Why? Because people believe that AI is in bubble territory and it is going to burst. We are certainly seeing high valuations and a lot of corporate debt being generated to pay for AI development.
On Wednesday, Nvidia had its third quarter earnings call and it exceeded Wall Steet’s expectations. Nvidia’s reported its revenue for the three months to the end of October at $47 billion. The result was a 5% jump in its share value in after-hours trading. Asian markets opened higher on Thursday morning.
The AI bubble may not be bursting just yet. Will it still pop? It could do. We don’t know. And if it does, we do not know when it will be, how bad it will be or how long it will last for.
But it is not stopping people looking to move out of US stocks…or at least funds that hold the Mag 7, which currently makes up 35% of the S&P 500 and 25% of the Global Stock index.
Is avoiding these companies going to insulate your investment? These are the world’s biggest companies with a total combined market cap of $21 trillion. And they are all bought in on AI. If they crash, it will not just impact on the Mag 7 or AI companies. It will spread and all equity markets will be hit. Or you could move to cash, where you are taking a risk on getting it wrong and the markets continuing to grow.
That is why investing is difficult. There are ups and downs and periods of uncertainty when we doubt ourselves and what is going on in the market. Or we try to be too clever and know when the market has peaked and sell at the top thinking that we will also know when to buy in at the bottom.
With our financial planning clients, we use a long term average return of 5% per annum. When we have our financial planning meetings, clients are happy with this conservative approach. When we look at the actual 10 year average return of the Global Stock Index is 10.57%, double the return that we use.
Why don’t we increase our conservative 5%? Because we know that that there will be crashes in the market and we can see that if we go back further than 10 years. If we extend our look back of the returns of the Global Stock Index going back to 2000, we can see the average return is 5.40%, in line with our assumption. And that is because, in the last 25 years, we have had the following:
There were some scary times there, especially the great financial crises when a lot of people lost their jobs as well as the markets tanking. But we know that if you stayed invested through all of that, you would have still seen the average return of your money.
Steven Barrett
24 November 2025