Why It’s Best to Conduct Lifeboat Drills in Calm Water: AI, Markets, and Being Prepared

We want to talk about the markets. Not because they are volatile, but because they are calm.

We have never been ones to predict markets, and we certainly won't start now. But we've been in this business for many years. We've seen good times, bad times, and everything in between.

Is AI a Bubble?

Right now, we are seeing a ton of excitement and cash spent building AI and all the infrastructure around it. This isn't the first time a new technology has come along and changed the world.

We saw the steam engine and railroads spread throughout the country. We went from the first glimmer of light in Thomas Edison's workshop to the modern power grid we have now. Diseases that would have killed you fifty years ago are now nothing more than a mild inconvenience. And of course, the internet and personal computer changed everything too.

All were exciting. All changed the world. All were expensive. And all, at some point, were overbuilt or overexpanded. Each brought change, excitement, capital spending, and yes, fear.

That leads us to where we are today. There is more and more fear building around AI. Not just the technology itself, but the capital spent on it and the debt taken on to fund that spending. Debt that has many people wondering: Is this a bubble?

We are often asked that question. “Is this a bubble?” Our answer: We have no idea. We honestly believe no one knows that with any real certainty. Nobody rings a bell at the top.

Here is what we do know. If it does turn out to be overbuilt, history tells us these things tend to unwind over time, not all at once. That doesn't mean there won't be sharp moments along the way. There usually are.

We watch valuations, debt levels, and how companies are actually spending that capital. That is what active management is for. Not predicting the future but paying attention to it.

Take a look at the chart below. Every shaded band is a real bear market since 1950. Every single one recovered.

Why We Believe Active Management Matters

These days, many people are solely “passive investors.” Passive investing says, “just buy the index.” If a company is in the S&P 500, you own it. Great company? You own it. Overpriced company? You own it too. There is no real decision being made. You simply accept whatever the index gives you.

Active management is different. There are actual people behind the portfolio doing the work. Studying companies. Meeting with management teams. Looking at valuations. Deciding what is worth owning and what isn't.

The indexes you see in the headlines are heavily weighted in just ten stocks. Right now, those ten make up about 40% of the S&P 500.¹ That isn't diversification. That's concentration. We're glad our portfolios don't run that concentrated.

While we believe active management can be a real advantage, it does not mean we are shielded from a dip. Our portfolios still hold equities, or stocks, and they move with the broader market. If stocks fall, we will feel some of that too.

What active management gives us is the ability to make decisions during that fall, not immunity from it.

The Price of Long-Term Growth

We own equities by choice, because we believe you have to own stocks in a world of ever-increasing prices. Stocks have historically been one of the investments that can help grow purchasing power over time.

That growth comes with a price. Fluctuations in the short term, and sometimes severe fluctuations.

Going back to 1945, the average bear market has brought a decline of around one-third.² It is also worth remembering that past bear markets have eventually ended, and the market has historically gone on to reach new highs afterward.

That trade-off, short-term discomfort for the opportunity for long-term gain, is part of the price of admission to pursuing long-term financial independence.

Why Lifeboat Drills Belong in Calm Water

We don't mean for this to be doom and gloom. It's far from that. We're optimistic about the long-term future of our investments.

But we've done this long enough to know that rough seas can arise from time to time. And as a ship does at sea, it's best to run a lifeboat drill in calm waters rather than when the storm is raging.

We believe in our investments. We believe in our money managers. We believe in the financial plans we've built together to help our clients reach their dreams and goals.

Rough seas will come, but just as they come, they will pass.

Our team at Entruity Wealth will be here to guide you through both calm and rough waters.

If you have questions or concerns about the markets, AI, or anything else, we always welcome the opportunity to talk with you.

Frequently Asked Questions

Does anyone know whether AI is currently in a bubble?

We don't believe anyone can know that with real certainty. Rather than trying to predict exactly what markets will do next, we focus on valuations, debt levels, capital spending, and the underlying companies in our portfolios.

Can active management prevent portfolio losses?

No. Active management does not make a portfolio immune from market declines. Equities can still fall with the broader market. What active management provides is the ability to evaluate holdings and make decisions as conditions change.

Why own stocks if markets can fall sharply?

Stocks have historically played an important role in long-term wealth creation and maintaining purchasing power. That opportunity comes with short-term fluctuations, including periods of significant decline. The right mix of investments depends on each investor's goals, time horizon, and circumstances.

Sources

¹ Ranked: 2025’s 10 Largest S&P 500 Stocks (Visual Capitalist)

² Wall Street could be headed for a bear market. Here’s what that means. (CBS News / Associated Press)

Disclosure

The opinions expressed in this piece are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry and the economy. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performances discussed in this letter are no guarantee of future results. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Advisory services are offered through Entruity Wealth, LLC, a Registered Investment Adviser. Services are only offered to clients or prospective clients where Entruity Wealth, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Entruity Wealth, LLC unless a client service agreement is in place.

Certain Advisory Persons of Entruity Wealth are also registered representatives of Purshe Kaplan Sterling Investments, Inc. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207.  Purshe Kaplan Sterling Investments and Entruity Wealth, LLC are not affiliated companies. California Insurance Producer License Numbers 0A68692 and 0K53827.