The entire US economy is currently being propped up by growth in the AI/tech sector. And I am convinced that LLMs are fundamentally incapable of delivering on the promises being made by the AI CEOs. That means there is a massive bubble that will eventually burst, probably taking the whole US economy with it.
Let’s say, for sake of argument, that I am a typical American. I work a job for a wage, but I’m mostly living paycheck to paycheck. I have maybe a little savings, and a retirement account with a little bit in it, but certainly not enough that I can retire anytime in the near future.
To what extent is it possible for someone like me, who doesn’t buy into the AI hype, to insulate themselves from the negative impact of the eventual collapse?
Your #3 is problematic.
The basis of the question is where to invest in order to avoid the coming AI crash. Your answer fails.
Truth of the matter is that predicting and determining when the stock market crashes or if a recession already happened is hard. Saying definitively “there were warning signs and I should have sold my shares” is hindsight bias. When COVID happened, everyone thought that a recession will occur and pulled out their investments. The COVID-induced recession didn’t happen and we have come with a better economy than before thanks to good handling of the economy by governments across the world. Those who sold their investments have to re-buy their shares but it is now at higher price than when they previously bought, and they missed out on potential higher profit had they stayed.
Of course, the world is not black and white and not all circumstances are the same. It is always a case by case basis and there are variables always at play. We came out well after COVID because we know that we definitely had a good leadership back then. But with economy under Trump, there is a higher chance of recession happening for obvious reasons, not just with AI bubble burst. In that case, it is still bad idea to sell all your shares because you would have to re-buy them at now premium price, but you could diversify your investments to safer countries or sectors in preparation for the high likelihood of a market crash. I have divested from US stocks and bought more European and Japanese ones, and invested in energy sector because it is more resilient even during economic troubles. I might have to rethink about my US healthcare stocks, however.
If you’re certain an “AI crash” is coming, then shorting AI companies is how you’d not only avoid the fallout but actually profit from it. That’s speculative investing though - basically gambling.
For everyone else without the ability to predict the future, the general advice stays the same: invest in low-cost, highly diversified index funds spread across sectors and regions. The markets are deeply interconnected, so it doesn’t really matter where you’re invested - when the market crashes, you’re getting hit. If you’re all in on tech, you’ll get hit hard; if you’re spread out, you’ll get hit less. But either way, you’ll feel it.
For someone in it for the long run, it doesn’t matter what the market’s doing. I just keep doing what I’ve always done - managing my finances carefully and investing my savings.
Right.
I will say also that if you want to hedge against AI, then you could invest in non-US based index funds.
Another option is to invest in something like real estate. Do the math and find something you can profit off of even with a down economy and you’ll be able to get your investment to ride out the hard times and earn in the good times. But similar to index investing, these investments should be made with an eye on long-term gains (on the order of decades).
A final option - possibly the best - is to invest in yourself. Put the money into good health (physical and mental), skills that pay dividends (like being able to cook or do your own repairs, or building a community around yourself of hard working, optimistic, and sensible individuals. Skills education can be a great investment - either going to a university (careful here with costs, but college graduates still do tend to have better lifetime earnings than non-graduates), a technical school (AI probably won’t replace plumbers for quite a while), informal self-teaching (you can learn a lot of skills just making personal projects at home or in a makerspace). And for the more ambitious, you can start your own business, which could be as simple as buying a ladder to clean people’s gutters or a snow plow attachment and truck to plow driveways and parking lots.
Hard times are coming - they always are. The people who do well in hard times are the ones with a diverse set of useful skills, a resiliant set of assets, a positive mindset, and a supportive community around them.
Shorting counts as income and you’ll be taxed on it as income. You also have a chance that no one will buy you out of the hole once it hits its mark.
Lots of risks in shorting.
While I agree with diversifying, the tariffs are fucking over the stock market hard in so many ways you cannot avoid it. Right now everyone sold their gold cuz they need money, And two days ago the tariff on China created a ripple on the precious metals. Tomorrow trump will fart some blithering assanine remark and suddenly for whatever reason lithium will take a dive for it.
Investing has become a stupid stress game.
I guess up your international market fraction (?)
If you’re certain there’s an AI crash coming then you could make a lot of money betting on it. Put your money where your mouth is and become one of the billionaires.
You could also just not invest money in AI companies.