Financial columnist Jeff Prestridge is urging investors to review and diversify their portfolios amid warnings that a stock market crash could be triggered by the bursting of an artificial intelligence bubble, even as major stock indices continue to rise.
Prestridge said financial experts have cautioned for the past year that gains driven by AI could unwind sharply. Markets have so far defied those warnings: the FTSE 100 is up 9 per cent this year, while the S&P 500 Index in the United States has climbed 12 per cent. Nvidia's share price alone has risen 940 per cent over the past five years.
Warnings from the City
Prestridge wrote that any eventual correction would be led by sharp falls in the share prices of big US tech companies, but that no stocks or markets would escape being dragged down. He drew a comparison with the bursting of the dotcom bubble in early 2000, when years of speculative gains in internet-related stocks were wiped out.
A former hedge fund manager told Prestridge's colleague, City editor Alex Brummer, that the only safe place for investors right now is government bonds, and that a stock market crash is imminent. Prestridge described the manager's implied advice as simply: sell. Prestridge said the view deserves serious consideration, noting that government bonds look attractive as yields continue to rise, both in the UK and around the world.
Why Prestridge is staying invested
Despite that warning, Prestridge said he sits in a different camp, referring readers to his companion article on investment funds for the next decade. Provided an investor's time horizon is long rather than short term, and they are comfortable watching their investments fall in value, he said they should stay invested. It is a view he has held since becoming a money journalist 40 years ago, and one he still regards as sound.
He said staying invested does not mean sitting on your hands. Investors should use this period to check their portfolio remains fit for purpose, giving it a makeover where needed, starting with diversification not just across stock markets and investment funds but into other assets such as precious metals and government bonds.
Trimming the 'magnificent seven'
Prestridge said the boom in US tech shares in recent years has left many investors' portfolios skewed heavily toward the American market, and that now is a good time to correct this. He advised anyone holding shares in the so-called "magnificent seven" - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla - to consider trimming their holdings, particularly if they are sitting on large paper gains.
Within a stocks and shares ISA or a self-invested personal pension, investors can do this without triggering capital gains tax. Outside those tax wrappers, Prestridge noted that investors have only a £3,000 nil-rate capital gains tax allowance for this tax year, after which any surplus gain is taxed at 18 per cent for basic-rate taxpayers or 24 per cent for higher and additional-rate taxpayers.
He also advised checking the latest monthly factsheets on any investment funds held, to see how much exposure they carry to the magnificent seven or to US tech stocks generally, and taking some gains if that exposure feels uncomfortable. Income-orientated investment funds, he said, are a good diversifier.
Adding gold and silver
Prestridge said gold and silver should also feature in investors' portfolios. Ian Williams, who runs the Charteris Gold and Precious Metals fund, told him that gold and silver prices should move ahead, driven respectively by geopolitical uncertainty and by electrification, since silver is widely used in solar panels and electric cars.
Prestridge said the purest way to gain exposure to rising precious metal prices is through a fund that tracks the gold or silver price directly, run by firms such as iShares and Invesco.
Bonds and next steps
On bonds, Prestridge said investing platforms hold plenty of information on the best-performing funds and on the most popular UK government bonds, known as gilts.
He said he plans to review his own ISA portfolio this weekend and urged readers to do the same.
