How I Invest During the “AI Bubble” — If It Is One

Why I Keep Investing in a Total World Equity ETF Despite AI-Driven Market Concentration

Periods of market uncertainty tend to amplify doubts, not just about how much to invest, but where. In early 2026, investor discourse is dominated by concerns about a potential AI bubble and the growing concentration of global markets around the so-called “Magnificent 7” US tech companies (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla).

This narrative has caught my attention as well, despite my belief in AI’s long-term potential and my firsthand experience navigating recent market drawdowns in 2020 (the COVID-19 pandemic) and 2022 (the rare simultaneous decline of both equities and bonds driven by high inflation). During those periods, I continued investing regularly through dollar-cost averaging (DCA) and achieved satisfactory long-term results.

Today’s context, however, is different. Markets remain elevated, and it is still unclear whether current valuations are justified by expected future earnings, or whether capital expenditures for new data centers will ultimately outweigh revenues from AI-related services. Even accepting comparisons with past episodes such as the railroad boom and the dot-com bubble – where failed companies left behind valuable infrastructure that supported subsequent market recoveries – it is difficult to ignore the potential pain that would accompany a downturn if expectations were to reset and market leaders were to lose momentum.

So, what should a long-term, Bogleheads-style investor – still far from retirement – do in such an environment?

Rather than reacting emotionally or attempting to outsmart the market, I have chosen to remain consistent with a global, market-cap weighted indexing strategy, using a broad all-world ETF as the sole equity component of my portfolio.

In my case, I selected Vanguard FTSE All-World UCITS ETF (ticker VWCE, ISIN IE00BK5BQT80). However, other ETFs with similar characteristics, such as:

• iShares MSCI ACWI UCITS ETF USD (Acc) (ISIN IE00B6R52259),
• SPDR MSCI All Country World UCITS ETF (Acc) (ISIN IE00B44Z5B48),
• Invesco FTSE All-World UCITS ETF Acc (ISIN IE000716YHJ7), or
• Amundi Prime All Country World UCITS ETF Acc (ISIN IE0003XJA0J9)

would have been largely equivalent choices. What matters is the structure of the exposure, not the specific product.

Why VWCE for My Equity Allocation

This section briefly describes the criteria that led me to select VWCE as my equity ETF of choice. In the subsequent sections, I will further discuss some of these aspects, as I consider them particularly relevant in this environment of increased market valuation and concentration.

Why Market-Cap Weighting Makes Sense

Market-cap weighting is the standard and most widely used methodology for equity indices, for good reasons:

• It reflects the collective judgment of all investors. Prices embed expectations about growth, risk, profitability and future cash flows, continuously updated by millions of market participants. Beating this aggregate view would require knowing more than everyone else—statistically unlikely.
• It is the most neutral representation of the market, weighting companies by their actual economic importance.
• It is self-rebalancing. When a company grows or shrinks, its weight in the index adjusts automatically.
  Winners naturally grow, losers naturally shrink. No trading is required by the ETF to rebalance, leading to lower turnover, lower transaction costs, and improved tax efficiency.
• It is cost-efficient, because trading occurs mostly in highly liquid large-cap stocks, minimizing bid-ask spreads.
• It is tax-efficient, as trading mainly happens due to investor cash flows or index changes, not daily price movements.
• It captures the full market return, including future winners. As John Bogle famously said: “Don’t look for the needle in the haystack. Just buy the haystack.”
• It is simple to understand, explain and stick with over time.

Why Not Equal Weighting?

An alternative approach is equal weighting, where each company has the same weight in the index [1]. This strategy can outperform market-cap weighting because it:

• has a natural bias towards smaller-cap companies;
• tilts toward the “value” factor, because it periodically sells outperforming (now more expensive) stocks and buys underperforming (cheaper) ones. This results in a negative exposure to the “momentum” factor, differing significantly from market-cap weighting which favors large, often growth-oriented stocks. 

However, it also has meaningful drawbacks:

• It represents an active choice relative to the neutral market portfolio, increasing the risk of regret during periods of underperformance—often referred to as relative risk.
• It introduces higher volatility, due to the overweighting of smaller companies.
• It requires frequent rebalancing, leading to higher turnover, higher transaction costs and lower tax efficiency.
• Equal-weight indices are only truly equal at the moment of rebalancing and drift quickly afterward.

From this perspective, market-cap weighting minimizes the range of relative outcomes versus the market benchmark.

Passive Investing and the Zero-Sum Game

According to Sharpe’s Zero-Sum Game (1991) [2]:

• “before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar, and,
• after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar”.

This means the advantage of indexing does not rely on markets being perfectly efficient. Active management is about making bets against the benchmark. Some win, many lose, and identifying winners in advance is extremely difficult.

Equal-weight indexing can be considered an active choice, despite being indexed, as it represents a deliberate deviation from the market portfolio. Market-cap indexing, by contrast, aims to track the benchmark itself, thereby reducing relative risk and making the strategy easier to stick with over time.

The AI Bubble, Market Concentration, and My Approach

At the beginning of 2026, global indices appear highly concentrated in a few US tech stocks. To reduce this concentration and introduce a home bias, I briefly considered adding a Europe-focused equity ETF to my portfolio. A candidate equity fund was Vanguard FTSE Developed Europe UCITS ETF (VWCG).

However, I realized that:

• any allocation between VWCE and a regional ETF would be arbitrary and speculative.
• In my case, it would be a bet on Europe and EUR outperforming the global market—something I cannot know in advance.
• I would face constant decision stress during monthly purchases (as I typically make regular contributions to my portfolio when I receive my paycheck).
• This 2-fund equity portfolio might require periodic rebalancing (for example every one or two years), to preserve the target allocation over time.

For simplicity and to avoid speculation, I decided to keep VWCE as my only equity ETF, trusting that over the long term currency fluctuations (USD/EUR) will be modest relative to equity returns. Rather than trying to predict which companies or regions will lead next, a global market-cap-weighted index automatically adjusts as leadership evolves.

My past experience in Australia reinforced this lesson: having two equity ETFs (VAS tracking the local market index, to which I added VGS for global exposure) increased diversification, but also increased decision fatigue at every contribution. With VWCE, global diversification is already built into a single instrument.

Portfolio Focus: Allocation, Not Prediction

Rather than speculating on regions or sectors, I’ve shifted my attention to what truly matters:
the balance between growth and defensive assets.

As of January 2026, my portfolio is roughly 45% growth / 55% defensive, a historically conservative allocation for my age. This positioning reflects the fact that some of my defensive assets are held in Australian Dollars, making them subject to currency risk. In recent months, however, I have intentionally increased my monthly purchases of VWCE to rebalance toward growth, and I plan to continue doing so.

Conclusion: Stay the Course

The temptation to react to narratives—AI bubbles, regional shifts, currency fears—is always present. Yet every deviation from a global market portfolio is ultimately a bet. I prefer simplicity over speculation, and a long-term approach over repeatedly adjusting my equity allocation in response to emotions—something I know would only add unnecessary stress over time. This approach feels right for me, and if nothing else, I hope these reflections have offered some food for thought.

Disclaimer

This article is not financial advice. It reflects my personal views, developed through independent study, and is intended as a reminder for myself and for readers interested in the topic.

This discussion reflects my perspective as a long-term investor based in Italy, where accumulating ETFs offer tax deferral advantages. Applicability elsewhere depends on local tax rules.

I am not affiliated with Vanguard or any other financial institution. The ETFs referenced were selected independently based on a combination of objective financial criteria and subjective considerations.

References

[1] Hsu, D., What to consider when choosing between index-weighting approaches, Vanguard Analyses, 2025.

[2] Rowley, J. et al., Setting the record straight: The truths about index fund investing, Vanguard Research, 2025.