BY WEALTH ADVISER
Financial markets feel uncomfortably expensive. US tech giants, smaller speculative tech, Australian housing, private assets, gold and Bitcoin all show signs of froth, prompting talk of an “everything bubble”. For Australian households, the challenge is staying invested enough to grow wealth without being over‑exposed if this boom turns into a sharp bust.
A recent Firstlinks article noted that the Magnificent Seven US tech companies are highly profitable, unlike many dot‑com darlings of the late 1990s, but still face big questions about whether today’s extraordinary margins can survive an AI spending arms race. The same piece highlighted far more extreme valuations among smaller AI and tech names—such as a leading analytics firm trading on more than 100 times revenue—where it will be almost impossible to justify current prices on fundamentals. Similar enthusiasm appears in large US retailers, Australian property, private equity and debt, gold and Bitcoin, all beneficiaries of years of easy money and a global hunt for yield.
For everyday investors, this environment fuels fear of missing out when markets keep rising, mixed with anxiety about being “the last one in” before a crash. Recent work on bubbles stresses that no one can reliably call the top, but every major boom has eventually reversed, and the worst outcomes usually hit those who entered the final stages with concentrated, leveraged and poorly diversified portfolios. The aim is not to time the peak, but to position so that you can live with both further gains and potential losses.
What makes a bubble – and why AI is different, but still dangerous
Classic studies of financial manias describe a pattern: a new story, rising prices and credit, euphoria, ignored warnings, then a crash and revulsion. A Firstlinks summary of this framework noted that while triggers change—rail‑ ways, canals, dot‑coms, housing, crypto—the emotional arc is similar, with growing confidence gradually turning into denial and capitulation.
Recent market research suggests it is more useful to think in terms of bubble “ingredients” than a simple label. Key ingredients include stretched valuations, heavy flows into a narrow group of winners, more leverage, aggressive marketing of new products and a belief that “this time is different” because technology or policy has rewritten the rules. Any single sign may be harmless; together, they warn that vulnerabilities are building.
The Firstlinks “everything bubble” article argued that exuberance now extends well beyond US tech. It pointed to mainstream US retailers such as Costco and Walmart, which trade on earnings multiples more typical of fast‑growing disruptors than mature, steady businesses.
The current AI boom shows this tension. Leading AI‑exposed companies are genuinely profitable, with strong cash generation and competitive advantages, and their valuations are not yet as extreme as the wildest names of the dot‑com era. However, these businesses are in a “money‑throwing contest” to secure AI leadership, with hundreds of billions of dollars being spent on data centres, chips and software, and history suggests such arms races eventually pressure margins and returns. At the same time, many smaller AI and software companies trade at revenue multiples that leave little room for disappointment, conditions that have often preceded brutal corrections in past cycles.
For retail investors, the lesson is that a strong technology story and healthy current profits do not remove risk when starting prices and expectations are high. Sensible participation in AI‑linked growth is still possible, but requires watching concentration, valuations and overall portfolio balance rather than assuming today’s leaders can defy economic gravity indefinitely.
Where froth appears in Australian portfolios
The Firstlinks “everything bubble” article argued that exuberance now extends well beyond US tech. It pointed to mainstream US retailers such as Costco and Walmart, which trade on earnings multiples more typical of fast‑growing disruptors than mature, steady businesses. Global dividend work shows that while worldwide dividends have risen, Australian payouts have recently softened, yet many local income stocks still command premium prices as investors crowd into perceived “safe yield”.
In Australia, residential property has moved higher again, helped by lower interest rates and government schemes that allow home purchases with deposits as low as five per cent. One commentator likened these policies to a “subprime mortgage scheme” in all but name, warning that they may encourage some buyers to take on debts that only remain comfortable if rates stay low and jobs stay plentiful. For households nearing retirement, large mortgages combined with modest super balances can leave little flexibility if property prices stall or incomes fall.
Private markets have also absorbed large inflows, as investors seek higher returns and apparently smoother performance than listed markets. Firstlinks has been sceptical, stressing that private equity and private debt are essentially private versions of listed shares and bonds but often with less transparency, infrequent pricing and long lock‑ups. Some private debt deals have already gone wrong, and funds that bought assets at high valuations in 2020–2021 are now being forced into discounted “secondary” sales. Without a clear extra return to compensate for these risks, retail investors may be giving up liquidity and information for little true benefit.
Traditional diversifiers also look complicated. After holding gold for nearly two decades, one Firstlinks writer described selling as queues formed outside a major Sydney bullion dealer, seeing that retail rush as a late‑cycle warning. They also noted that gold has recently risen alongside shares, suggesting it may not play its usual defensive role if equities fall. Bitcoin, despite extraordinary long‑term gains, still attracts criticism as a vehicle for speculation and scams, and its history of severe drawdowns makes it a risky core holding for most households.
Taken together, a typical growth‑oriented portfolio for an Australian household today might be heavy in US growth and AI winners via global funds, geared property, popular income stocks priced for perfection, slices of private equity or debt and some gold or crypto “just in case”. Each theme has a rationale, but in combination they can create a struc‑ ture very sensitive to a broad risk‑off episode.
Practical shelters: diversification, 60/40 thinking and value
In frothy markets, many investors instinctively retreat to cash. Cash and term deposits offer capital stability, daily liquidity and flexibility to buy assets more cheaply after a fall. Yet recent analysis shows that even with deposit rates around four per cent, after tax and inflation many savers risk losing ground in real terms, especially at higher tax brackets, so cash is best seen as a buffer and opportunity pool rather than a long‑term growth engine.
Bonds, by contrast, have endured a rare multi‑year bear market as yields climbed from ultra‑low levels. They are now widely underweighted, yet a 150‑year stress test of a traditional 60/40 portfolio showed that diversified mixes of shares and high‑quality bonds have consistently reduced the size and length of drawdowns compared with all‑equity portfolios. The message is not that bonds are risk‑free, but that they can still play a valuable defensive role when used thoughtfully—often via shorter‑duration, investment‑grade exposures held alongside cash, rather than large, concentrated bets on long‑dated government debt.
Equities remain central to long‑term wealth. The Firstlinks “everything bubble” article highlighted one area that looks more promising than dangerous: value stocks. Since the global financial crisis, value strategies have badly lagged growth, leading many investors to abandon them and fuelling a belief that “cheap” companies stay cheap. History suggests that long periods of value underperformance have often set up strong subsequent returns; in the inflationary 1970s and after the dot‑com bust, value stocks outpaced both the broad market and glamorous growth names.
Today, with the biggest US growth companies dominating index returns and headlines, many high‑quality but less fashionable businesses trade on modest valuations. For Australian investors, tilting part of the equity allocation towards diversified, quality‑focused value strategies—locally and globally—can provide a useful counterweight to growth and momentum exposures, especially when combined with better diversification across regions rather than relying heavily on US tech, local banks and miners.
Stress‑testing your portfolio and staying calm
The most practical step if you are worried about an “everything bubble” is to stress test your own portfolio. The Firstlinks article suggested asking whether you could live with global share markets falling by 30–50%, and which holdings would hurt most. This means looking beyond generic risk labels to specific exposures: how much sits in US growth and AI‑linked companies, how dependent you are on geared property, what portion is locked in illiquid private investments and how large any single‑stock or sector bets have become.
Historical research shows that deep drawdowns are a recurring feature of equity investing, not freak accidents. The real question is whether your finances and temperament are ready for when they arrive. For retirees and those close to retirement, that includes considering how a major fall combined with ongoing withdrawals would affect income and whether enough is held in cash and high‑quality defensive assets to avoid forced selling at depressed prices.
Behaviour matters as much as the numbers. Commentators have described how fear and greed can hijack decision‑making, particularly late in a cycle when stories of easy gains are everywhere. One practical safeguard is to work with a trusted adviser to agree broad rebalancing rules in advance—when to trim overweight winners, how to react to large falls and when simply to hold steady. Another is to focus on income and fundamentals—such as dividend growth and company profitability—rather than day‑to‑day price moves.
Protecting wealth in an “everything bubble” is less about dramatic market calls and more about resilience: holding sensible buffers, avoiding over‑concentration in fashionable themes, being realistic about illiquidity and aligning risk with your goals and timeframes. For many Australians already in diversified portfolios, that may mean modest adjustments, not wholesale change, and using this period of euphoria as a prompt to check, with your adviser, that your portfolio can withstand both further booms and the inevitable busts that follow.
References
• “Where to hide in the ‘everything bubble’”, Firstlinks / Morningstar, James Gruber, 27 November 2025.
• “Are we in a bubble?”, Morningstar Australia, 11 November 2025.
• “Boom, bubble or alarm?”, Firstlinks, 5 August 2025.
• “The 60/40 portfolio: A 150‑year markets stress test”, Morningstar Australia, 13 July 2025. • “The hazards of asset allocation in a late‑stage major bubble”, Firstlinks, updated 19 September 2025.
