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

‘Portfolios are becoming much riskier’: How to make defensive investments before the AI bubble pops Becky Robertson Mon, July 13, 2026 at 12:00 PM GMT+2 5 min read GOOG AMZN META MSFT Jung Yeon-je/AFP via Getty Images 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. Must Read Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here's what it is and 3 simple steps to fix it ASAP Millionaires under 43 hold only 25% of their wealth in stocks.

Here's where their money is actually going 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 (2)to his Substack, 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. Story Continues 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.

" Read More: Are you paying too much for car insurance? Here are 3 clever ways to slash your monthly bill 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), while international markets , if investments are active and strategically selected (8), can 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 areokay 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. You May Also Like 'Gold still crashing! ': Robert Kiyosaki admits he was wrong — but doubles down on his $35K prediction The tax breaks in Trump's 'big beautiful bill' expire after 2028 — and experts say most people won't act in time.

What to do before the window closes Here's the average income of Americans by age in 2026. Are you keeping up or falling behind? When he dies, Warren Buffett said 90% of his wife's inheritance will go into a single investment.

Here's why (and how you can do it too) Join 250,000+ readers and get Moneywise's best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now . Article Sources We rely only on vetted sources and credible third-party reporting.

For details, see our ethics and guidelines . CNBC ( 1 ); Substack ( 2 ); The Market House ( 3 ); Reuters ( 4 ); Yahoo Finance Canada ( 5 ); Guardfolio ( 6 ); Barron's ( 7 ); Schroders ( 8 ); Urban Land ( 9 ); Oliver Wyman ( 10 ); Seeking Alpha ( 11 ); Saxo ( 12 ); Vanguard Investor ( 13 ); Yahoo Finance ( 14 ) This article originally appeared on Moneywise. com under the title: 'Portfolios are becoming much riskier': How to make defensive investments before the AI bubble pops This article provides information only and should not be construed as advice.

It is provided without warranty of any kind.