Finance

‘Portfolios are becoming much riskier’: How to make defensive investments before the AI bubble pops

Moneywise · Jul 16, 2026 11:10 · 8 min read

Making defensive investments to hedge against the AI bubble

The best practices of risk aversion and diversification have changed in this era of tech hype.

This article adheres to strict editorial standards. Some or all links may be monetized.

Diversification has been a cornerstone of responsible investing practice for decades, but may be more crucial than ever in the midst of the stock market’s continued bull run, experts say.

As analysts point out that positive stock market returns over the last few years have largely been thanks to a few outperforming tech companies (1), which many argue are overvalued, other patterns are emerging that could spell trouble for the average portfolio.

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That includes, as illuminated by veteran Wall Street commentator Jim Paulsen this week, higher general risk (and a severe dearth of traditional risk aversion) across indexes.

“Among all the AI excitement, investors have increasingly allowed the degree of risk aversion to fade from their portfolios,” Paulsen wrote in a July 2 post to his Substack (2), where he shares market insights informed by his 40-year career as a strategist.

“What is becoming clear is that the S&P 500 index – and probably most portfolios — is becoming much riskier … [and] with risk aversion increasingly [missing], the chance of disappointing results has increased.”

The unseen tech exposure

Of primary concern to the everyday investor is that even if you’re not one to jump on the chip bandwagon or cancel your life insurance to invest it in tech ETFs (3), the very nature of America’s indexes right now leaves you more exposed to the potential fallout from an AI bubble than you may realize.

Many popular broad market index funds, such as those based on the S&P 500, are now about 40% weighted in tech (4). Alphabet [NASDAQ:GOOG], Amazon [NASDAQ:AMZN], Microsoft [NASDAQ:MSFT] and Meta [NASDAQ:META] — perennially in the S&P’s top 10 — are expected to put a collective $700 billion into artificial intelligence this year alone (5), meaning you’re likely in the AI game, like it or not.

Holdings across multiple ETFs won’t help, either, as they all overlap (6). And even funds billed as “international” are still heavily reliant on the U.S. market and economy,

As Paulsen and other experts have warned this year, most components of the market “are essentially failing,” opening a widening gap between “new era” and “old era” stocks. The two types historically move in the same direction during market highs, even if a small number are leading the charge — but this year, tech shares have been rising to record highs not just in isolation, but while traditionally safe and steady “defensive” stocks suffer.

Those defensive stocks currently make up about 17% of total S&P 500 market capitalization, close to a record low half of its peak during the early 1990s, Paulsen wrote, warning that “With [defensive stocks] now comprising such a small share of capitalization, expect wilder market swings during the balance of this bull market.”

How to position yourself to be more defensive

If you don’t want to lean too much into the AI boom, you can diversify with funds or individual shares in essential non-tech sectors such as healthcare, consumer staples and regulated utilities. There are also broad-based funds that are less tech-weighted (7). International markets, if investments are active and strategically selected (8), can also provide more shielding and are often better priced, to boot.

Keep in mind that market segments like real estate (particularly data center or office and retail REITs (9)), some industrials and materials (10), unregulated or nuclear utilities (8) and financials will have indirect AI exposure.

That being said, within these segments, precious metals like gold and silver, residential or self-storage REITs (11). and cash-generating physical real estate, depending on interest rates, could help you plant a more defensive position, as can some value equities (8). Just do your research.

Ensuring you have a maximum of 25% sunk into any given sector, and at most, 5% in any given position, are common best practices (6) for responsible diversification, as is moving 15% (12) to 20% of your stake abroad (13).

The traditional 60/40 rule of dividing your assets between equities and bonds has also been turned on its head in this new era, with some economists suggesting (14) that if you are okay with a bit of risk to get in on the AI party, you instead allocate 60% of your portfolio to AI-exposed markets and 40% to AI-proof investments.

Add a safe haven asset

If the AI boom has pushed your portfolio heavily toward high-growth tech stocks, now may be a good time to think about balance. No one knows exactly when market sentiment could shift, but adding lower-risk investments that don't rise and fall alongside the stock market can help reduce volatility as tech stocks lose steam.

Gold has earned that reputation over centuries because it isn't tied to any single company, currency, or economy. Unlike paper money, it can't simply be created at will, and it has often held its value during periods of financial uncertainty.

That's one reason investors frequently turn to gold when markets become volatile or geopolitical tensions rise, pushing prices higher. Gold prices have more than doubled over the past five years, hitting multiple record highs along the way and outpacing the S&P 500 over the same period.

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With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.

If you’re curious whether this is the right investment to diversify your portfolio, you can download your free gold and silver information guide today.

Invest in lower-risk instruments

Certificates of deposit are one of the simplest defensive investments available, as they pay a guaranteed interest rate over a fixed term. Unlike stocks, returns on CDs aren't dependent on quarterly earnings or investor enthusiasm. That stability can provide welcome peace of mind if markets experience a sharp correction.

For those seeking predictable, reliable growth, a platform like CD Valet can help you find higher-yield options that work for you, whether you’re saving for something soon or building a cushion for the long haul.

CD Valet tracks over 40,000 verified rates from FDIC-insured banks and NCUA-insured credit unions nationwide. Unlike other websites, they show every publicly available rate, ensuring you have a comprehensive view of the market.

Plus, their CD rates are updated continuously, so you can shop, compare and open CDs with ease.

Another option, and one with a similar timeline and that typically offers higher cash-yields, is the Arrived Real Estate Income Fund, which is designed to generate regular dividend income while focusing on capital preservation through the staying power of real estate.

The fund already manages more than $83 million in assets and has historically delivered an annualized cash yield of more than 8.1%. To put this in perspective, even the "aristocrats" of dividend stocks struggle to reach a high-water mark of 5.51%, according to Morningstar (15).

How it works is simple: Arrived offers short-term loans for professional real estate projects seeking to renovate, refinance or fund new construction. Each loan goes through a disciplined selection process and is backed by residential real estate, adding another layer of underwriting rigor and downside protection.

Even better, Arrived Real Estate Income Fund investors also have quarterly liquidity options beginning six months after their initial investment, offering more flexibility than many traditional income-focused investments. You can also invest with just $100 if you want to test the waters first.

Diversify with real estate

Adding real estate to your portfolio can provide exposure to an asset class that typically follows a different cycle. Unlike fast-moving technology stocks, real estate prices are largely influenced by local market conditions, housing shortages, construction trends, and tenant demand rather than investor sentiment alone.

Real estate also has the potential to generate returns in multiple ways. Alongside long-term appreciation as property values rise, rental properties can produce ongoing income, giving investors a reliable source of cash flow.

You no longer need hundreds of thousands of dollars to get started, either.

For example, mogul is a real estate investment platform offering fractional ownership in blue-chip rental properties, which gives investors monthly rental income, real-time appreciation and tax benefits — without the need for a hefty down payment or 3 a.m. tenant calls.

Founded by former Goldman Sachs real estate investors, the team hand-picks the top 1% of single-family rental homes nationwide for you. Simply put, you can invest in institutional quality offerings for a fraction of the usual cost.

Each property undergoes a vetting process, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average annual IRR of 18.8%. Their cash-on-cash yields, meanwhile, average between 10 to 12% annually. Offerings often sell out in under three hours, with investments typically ranging between $15,000 and $40,000 per property.

Getting started is a quick and easy process. You can sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.

Investors with larger portfolios may also want to consider multifamily housing. In a report prepared by JPMorgan Chase, Al Brooks (16) — the firm’s vice chair of Commercial Banking — said, “I think multifamily housing is absolutely where you want to be as an investor.”

Accredited investors can now tap into this opportunity through platforms such as Lightstone DIRECT, which gives accredited investors access to single-asset multifamily and industrial deals.

Lightstone DIRECT’s direct-to-investor model ensures a high degree of alignment between individual investors and a vertically-integrated, institutional owner-operator — a sophisticated and streamlined option for individual investors looking to diversify into private-market real estate.

With Lightstone DIRECT, accredited individuals can access the same multifamily and industrial assets Lightstone pursues with its own capital, with minimum investments starting at $100,000.

— With files from Becky Robertson

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‘Portfolios are becoming much riskier’: How to make defensive investments before the AI bubble pops

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