Are we in an AI/Tech bubble? What Should I do? (Q3 2025 Market Update)

Integrity Investment Advisors’ Q3 market update addresses current S&P 500 valuations, which are high (in the top 90+% percentiles), suggesting future returns might be lower than the average 14% seen over the last 10 to 15 years. Although there is much fearful talk about an AI bubble, the market is likely not in one quite yet. Investors should remember that most portfolio risk comes from the stock allocation, making financial planning the essential answer to determining risk needs. Crucially, data suggests it is often better to buy at all-time highs rather than waiting for a pullback, emphasizing that time in the market is more important than trying to time it, while still expecting normal 10% to 35% pullbacks. To mitigate risk in this environment, Integrity Investment Advisors is rolling out an asset class framework that increases allocation to alternatives (like 10% or 20%), potentially shifting a 60/40 portfolio to 50% equities, 30% bonds, and 20% alternatives, utilizing a safety, middle, and long-term equity bucket framework.

Referenced Links:

Coatue Slides

Goldman Paper

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5 Key Points:

1. High Valuations and Lower Expected Returns: Current S&P 500 price-to-earnings valuations are high, residing in the top 90+% percentiles compared to historical data, indicating the market is expensive. Consequently, while returns have averaged about 14% per year over the past 10 to 15 years, lower returns are expected moving forward. Concerns about market valuations should be addressed through financial planning to determine how much risk is necessary to achieve goals and lifestyle.

2. Risk Concentration in Equities: It is crucial to understand that most of the risk in the portfolio comes from the stock or equity allocation. For example, 95% of the risk in an 80/20 portfolio and 86% of the risk in a 60/40 portfolio is attributed to equity risk. Integrity Investment Advisors structures client portfolios using a three-bucket framework: a Safety Bucket (high-quality bonds for liability matching), a Middle Bucket (alternatives and hedging), and a Long-Term Equities bucket.

3. Strategic Shift to Alternatives for Risk Mitigation: Integrity Investment Advisors is adding more alternatives, often with AQR, to mitigate risk across client portfolios. This change involves adjusting traditional allocations; for instance, a 60% equities / 40% bonds portfolio might shift to 50% equities, 30% bonds, and 20% in alternatives. The goal is for alternatives to help weather potential storms and potentially offer better returns than bonds.

4. Time in the Market is Key, Even at All-Time Highs: Time in the market is more important than timing the market, as timing is nearly impossible. Data from 1988 to the end of 2024 showed that it is “okay and better to actually buy at all-time highs than any other day,” as forward returns were slightly better at the one, two, three, and five-year marks. Although large 50% drops are not expected, investors should anticipate that a 10% to 35% pullback in stocks is very normal and should be expected at any time.

5. Focus on Diversification over Stock Picking Amid AI Talk: While there is much fearful talk about an AI bubble in the news, we are likely not in a bubble quite yet, although it might end up there. Odds are that AI will increase overall GDP and productivity. Investors are encouraged to own ETFs and utilize massive diversification because picking individual stocks is “brutally hard,” given that, on average, less than half of the companies in the S&P 500 outperform in a given year.

Frequently Asked Questions

If you want to work on your personal financial plan or want a 2nd opinion about your strategy & red flags, please schedule a meeting

• Markets are Looking Forward: Recovery From April Lows 8/4/25
• A Roadmap to Succeed in Pullbacks & Recessions 4/5/25
• There is always something to worry about 3/12/2025
• How much risk do you need to take to hit your goals? 11/5/2024
• Is it normal for stocks to go down -5% to -10% in a short period of time?  8/7/24
• Are Things Getting Better or Worse? 3/27/24
• Market Recap & Path Forward 2024 -1/16/24
• Markets Normally Go Up & Bear Markets Are Transitory – 7/16/23
• Stocks are up 11% per year for the last 7 years!  6/30/22
• The Answer to Volatility is Financial Planning 5/6/2022
• Tough Choices — What do we own & why? 2/17/2022
• Are Things Getting Better or Worse? 10/15/2021
• Back to Normal but Now What? 5/7/21

Thanks for reading/watching.  This website is for educational purposes only and is not investment advice.

Benchmark Performance Reports Disclosures:

Historical performance results for investment indexes, ETFs, mutual funds and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. None of the indexes, ETF or mutual funds are meant to describe the performance of actual clients.  They are only for informational & educational purposes. The S&P 500 is not the only index used as a benchmark for measuring the performance of a portfolio. Depending upon the holdings in your portfolio, your investment objectives, and your risk tolerance, it may be more appropriate to measure performance against a different benchmark like MSCI World, balanced portfolios or bonds. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark or index strategy.

 Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended by the advisor), will be profitable or equal to past performance levels. All investment strategies have the potential to profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.

 The information provided herein is for informational purposes only and is not intended to be, and should not be construed as, legal or tax advice. You should consult with a qualified tax advisor, CPA, or attorney before making any decisions based on this material, as individual situations may vary. We do not provide tax or legal advice. Any tax strategies discussed are general in nature and may not be appropriate for your specific circumstances.

 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Integrity Investment Advisors’ website and its associated links offer news, commentary, and generalized research, are not personalized investment advice. Nothing on this website should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and unless otherwise stated and are not guaranteed. Be sure to consult with a tax professional before implementing any investment strategy. Investment Advisory Services offered through Integrity Investment Advisors, a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training.