Question: I am very worried that the AI bubble is going to crash soon. What should I do?
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ACEP Now: January 2026
A bear market in stocks is generally defined as a 20 percent drop in value from the peak. On average, bear markets occur about every three years, last for 10 months, and require two and a half years to recover. As I write this in November 2025, our last bear markets were January to October 2022 (a 27 percent drop in U.S. stock prices) and February to March 2020 (a 34 percent drop in U.S. stock prices). A knowledge of financial history arms an investor with the means to control the most important factor in their investment returns and financial security: their own behavior.
After exceptional returns, particularly among U.S. large-growth tech companies, (aka artificial intelligence (AI) stocks), for the last three years, many investors are worried about a bubble. While bubbles, and particularly the date they’ll burst, are challenging to identify in advance, we are sure to have another bear market at some point in the future. A wise investor prepares in advance for bear markets and controls their own behavior throughout the bear market to avoid serious financial setbacks.
Preparing for a bear market is critical. Perhaps the most important thing is to educate yourself about stock market history in advance, then incorporate that knowledge into a written investment plan that you can follow in the throes of a bear market. A solid written plan will dictate what you invest in and how you behave during a bear market. Then all you have to do when the bear market actually occurs is keep your commitment to yourself by following the plan.
A solid investing plan is diversified, both between and within asset classes (or types of investments). For example, my personal long-term asset allocation (mix of investments) dictates that I will have 40 percent of my money invested in U.S. stocks, 20 percent in international stocks, 20 percent in bonds, and 20 percent in real estate. If U.S. stocks have a bad year, my new investment money will go toward those stocks to bring the portfolio back into balance. If things get really bad, I might even have to sell some of those other assets to buy more U.S. stocks. Although it doesn’t feel very good to buy something that has recently gone down in price, history informs us that these purchases usually have the best long-term returns. Using broadly diversified investments such as index funds, rather than a few individual stocks, also allows us to have confidence in the eventual recovery of money lost in a bear market.
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