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Katie and I were chatting about the headlines: “AI bubble!” “Tech crash coming!”
In the Rebel Finance School Facebook group we see posts asking “Should I sell and go to cash before the bubble bursts?”
It’s easy to panic when you see that seven companies, the Magnificent Seven, are dominating the market. If they fall, will your global index fund crash too? Is Artificial Intelligence really going to deliver? When will the bubble burst?
Let break this down through the lens of a global index fund
The Magnificent Seven: Big, Bold, and Concentrated
The Magnificent Seven are Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla. The current giants dominating the global market place.
As of late 2025 they make up 37.4% of the S&P 500 (up from 12% in 2015). Source
That’s concentration risk. If these companies stumble, the S&P 500 will feel it hard. But what about your global index fund?
Global Index Funds: Diversification Built In
If you own something like:
- UK: Vanguard FTSE Global All Cap
- US: Vanguard Total World (VT)
- NZ: Vanguard Total World (VT) through InvestNow
…you’re far more diversified than with an S&P 500 fund.
AI Generated illustrative visualisation of the FTSE Global All Cap
Here’s why:
- S&P 500 = 500 U.S. companies only. All your exposure is to one country and one economy. If the U.S. struggles, your portfolio struggles.
- FTSE Global All Cap = 7,000+ companies worldwide. You own businesses from every major market, U.S., Europe, Asia, emerging markets and across every sector: healthcare, energy, finance, consumer goods, tech, and more.
- Sector diversity matters. When tech stumbles, other sectors like healthcare or consumer staples often hold steady or rise. Global funds spread your risk across industries.
- Country diversity matters. Economic cycles differ by region. If the U.S. slows, other countries may grow, cushioning your portfolio.
- Automatic market-cap weighting. The biggest companies get proportionate weight, but you still own thousands of smaller firms that balance the giants.
This is why global index funds act like a shock absorber. They reduce concentration risk and give you exposure to the entire world economy, not just one country or one sector.
Compared to 37.4% of the S&P 500 those magnificent 7, in the FTSE Global All Cap Index, account for 18.87% of the fund. Source
That is half the concentration. Yes it is still a sizeable chunk but far more diverse.
Why would you still want 18% of every pound or dollar you invest to go into 7 companies alone?
Why You Don’t Want to Overweight or Underweight
Here’s the trap:
- Overweighting: “These stocks are winners! I’ll buy more.” That’s concentration risk. If one blows up, your portfolio takes a hit.
- Underweighting or avoiding them: “They’re overvalued! I’ll skip them.” If they keep rising (as they have for a decade), you miss out on huge gains.
Both are forms of stock picking—and humans are terrible at it.
Humans vs. Market-Cap Weighting
Market-cap weighting means your fund automatically adjusts as companies rise or fall. No guessing. No emotional decisions. The winners get bigger in the index; the losers shrink. You never have to decide.
Humans, on the other hand? The data is brutal:
- DALBAR Study: Over 30 years, the average equity investor (Stock Picker) earned 6.8% annually, while the S&P 500 returned 9.6%. That’s a gap of nearly 3% per year, costing hundreds of thousands over time. Source
- In 2024, investors underperformed the S&P 500 by 848 basis points (8.48%) because they pulled money out before a rally. Everyone thought that a crash was coming but the opposite happened! Source
Why? Fear, greed, and bad timing. People buy high and sell low. Every. Single. Time. We think we can predict the market but the reality is no one can.
Study after study shows that leaving your money alone, allowing it to grow over time and riding out the crashes, corrections and bubbles is the best way to go. But can use resist tampering with your portfolio when you “know” there is a bubble coming?
What Happens If AI Stocks Crash?
If the Magnificent Seven drop 30%, the S&P 500 will feel it the most because it has the highest concentration, 37.4% in those seven companies.
VTI (Total U.S. Stock Market) will feel it slightly less, but still a lot, because it’s still 100% U.S. companies and tech dominates the U.S. market.
FTSE Developed World ex UK will feel it even less because it’s global, but it only includes large and mid-cap stocks, so the Magnificent Seven still have significant weight. This is the fund Katie and I primarily hold.
FTSE Global All Cap is the most diversified of all. It includes large, mid, and small-cap companies across the entire world, so it would feel the least impact, of these funds, if the Magnificent Seven bubble bursts.
And here’s the kicker: we don’t even know if it’s a bubble! Earnings might grow to justify today’s valuations. Nobody can predict the future, which is why diversification and market-cap weighting are your best defence.
The Donegan Take
We don’t try to guess winners. We don’t avoid tech because it feels overvalued or frothy. We own the whole market through a global index fund and let market-cap weighting do the work. Humans are bad at judgment calls, so we remove judgment from the process.
Don’t let emotion get involved with your investing!
Stop listening to the doom press that says it is a bubble and going to burst, no one knows and they are just saying that to sell newspapers and get clicks.
Quick Checklist
✅ Own one global index fund (FTSE Global All Cap, VT, or similar)
✅ Avoid stock picking and market timing
✅ Ignore the noise—stick to your plan
✅ Rebalance only if you add bonds for retirement. If you don’t own bonds then your one simple global index fund auto rebalances for you!
Final Thoughts:
Could an AI crash hit your global index fund? Yes, but not like it would hit a concentrated portfolio. Diversification cushions the blow, and market-cap weighting means you never have to guess. The best defence? A simple, global index fund and the discipline to stay the course.
What do you think? Is a simple global index fund enough defence for you? Could you ride out a 30% drop in stock market valuations and not panic sell? Do you truly believe there is a bubble that is going to burst?
We would love to know your thoughts…
Peace and Pineapples
Katie and Alan
PS: Here’s the whole series of articles for you:
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