The danger of investment bubbles
Remember Zoom? During the pandemic, it was the darling of the stock market. Everyone was using it, everyone was talking about it, and investors couldn't get enough of it. The share price rocketed. Then life went back to normal, and... well, you can probably guess what happened next.
The thing about bubbles is that they're brilliant fun while you're inside them. It's only when they pop that you realise you should have got out earlier.
Right now, there's a lot of talk about bubbles. AI stocks. Bitcoin. Even gold. And with all the chatter comes a crucial question: are we heading for trouble?
The AI alarm bells are ringing
The Bank of England has warned that equity market valuations appear stretched, particularly for AI-focused tech firms, with the risk of a sharp market correction increasing. The central bank noted that share price valuations on US stock markets are similar to those seen near the peak of the dotcom bubble on some measures.
They're not alone. Goldman Sachs CEO David Solomon has predicted that much deployed capital will not deliver returns. Meanwhile, broadcaster Robert Peston recently discussed whether we're approaching an AI crash, asking how big the bubble is and who will be hurt when it bursts.
You can see why they’re worried - the five largest US tech firms now command 30% of the S&P 500 index - a 50-year high - making the market highly susceptible to shifts in AI sentiment. Nvidia is trading at a price-to-earnings ratio of around 52, while Amazon's sits at approximately 32.7. These are significant valuations, though interestingly, still cheaper than during the dotcom bubble of 1999, when Amazon's stock returned an astonishing 970.8% in 1998.
It's not just AI
Bitcoin is another talking point. UK investment giant Hargreaves Lansdown recently warned that Bitcoin is too risky and shouldn't be relied upon to help clients meet their financial goals, noting it has no intrinsic value. The price has certainly gone bananas in recent years, but whether it's overpriced depends entirely on where the world goes from here.
Then there's gold. Usually a safe haven during uncertain times, it's now expensive because investors have piled into it as government debt has soared and cash interest rates have fallen. Ten years ago, buying gold might have made sense. Today? You'd likely be buying at the peak, just as everyone else is getting out.
The pattern is always the same: buy the time your mate down the pub or someone on the internet is telling you it's a sure thing, it's probably too late. You're buying when everyone else already has.
So what do you do?
Does this mean you should avoid these investments entirely? Not necessarily. The danger isn't in participating, it's in going all-in.
If you pile everything into one hyped-up sector or asset, you'll be overexposed when the bubble bursts. But if you avoid these trends completely, you might miss out on genuine opportunities. Amazon, after all, survived the dotcom crash and went on to become one of the world's most valuable companies.
The answer, as unsexy as it sounds, is diversification. Diversification means spreading your investments across different types of assets, sectors, and geographies - so if one area struggles, your entire portfolio doesn't go down with it. It's the investment equivalent of not putting all your eggs in one basket.
This is the approach we use, alongside professional fund managers. They’re not trying to time the market perfectly or chase the latest craze. Their job is to spot trends early, when they actually count, and to balance risk across a portfolio so that no single bubble can sink your financial future.
They're doing this full-time. They're analysing data, monitoring markets, and making strategic decisions based on expertise and experience. Most importantly, they're thinking about your long-term goals, not short-term hype.
When a fund manager includes AI stocks or other 'hot' investments in your portfolio, they're doing it strategically. They're participating in potential growth while protecting you from catastrophic losses if things go wrong. They understand that markets move in cycles and that even if a correction comes, it won't be the end of the world if your investments are properly diversified.
The golden rule: markets always come back
Yes, there might be a bubble. Yes, it might burst. But history shows us that markets recover. They always have.
The key is not to panic and not to chase yesterday's winners. By the time something's gone mainstream, the early gains have already been made. The trick is having a strategy that lets you benefit from growth while protecting you from the inevitable corrections.
So don't let the headlines scare you. Economic uncertainty, bubble warnings, and market volatility can all feel overwhelming. But remember, a long-term financial plan built around your goals, not the headlines, is what protects you through times like these.
That's what we help people do every day. So if you're worried about bubbles, overvalued stocks, or whether your investments are too exposed to the latest hype, we can help you make sense of it all.
Give us a call if you'd like to find out more.
Please note: The value of investments can fall as well as rise, and you may not get back the full amount invested.
The information in this blog was correct as of 17 October 2025.