Ask The Compound – "How Do You Invest in a Bubble?"

Podcast: Ask The Compound
Episode Date: October 1, 2025
Hosts: Ben Carlson & Duncan Hill

Episode Overview

In this episode, Ben Carlson and Duncan Hill tackle some of the hottest and most challenging questions on investing in the current AI boom – a period many are viewing as a potential market bubble. The hosts break down how investors should approach markets that feel speculative, especially given historical precedents. Other topics include how to use home equity in retirement planning, philosophies around "dying with zero", the value of hiring a financial advisor, and what truly constitutes "upper middle class" in today’s America.

Key Discussion Points and Insights

Are We in an AI Bubble? How Should Investors Respond?

• Ben’s Historical Take: Ben draws parallels between today’s AI frenzy and past manias, like the 1800s railway boom and the 1999 dot-com bubble ([02:17]).
  • Past bubbles led to overinvestment and losses, but also laid crucial technological foundations.
  • “They laid down railroad tracks to places where towns didn't even exist... That bubble put England way ahead... It transformed the country in a lot of ways.” – Ben ([02:30])
• Difficulties of Bubble Spotting:
  • “Everyone knows when we're in a crisis. That's easy. No one knows exactly when we're in a bubble.” – Ben ([03:05])
• Quote from Jeremy Grantham ([03:19]):
  • "The long, long bull market since 2009 has finally matured into a full fledged epic bubble... This could very well be the most important event of your investing lives."
  • Ben notes Grantham wrote this in Jan 2021, and markets have since nearly doubled, highlighting how tough bubble timing is.
• The Four Strategies for Bubble Environments ([04:42]):
  1. Go On Offense (Soros Method)
     • "When I see a bubble forming, I rush to buy, adding fuel to the fire." – Ben quoting Soros ([04:50])
     • Ride the momentum but have a clear exit or high risk tolerance.
  2. Play Defense (Grantham Approach)
     • Shift to cash, bonds, or hedging.
     • Difficult due to the risk of missing ongoing upside; “Market timing is always hard, but even more so in a bubble.” ([05:36])
  3. Diversify
     • Don’t go all-in or all-out; adjust allocations and include undervalued or less-speculative areas (value stocks, bonds, REITs, non-tech sectors).
     • “There are other areas of the market that end up doing okay. ...Pick something besides mega cap stocks, tech stocks.”
  4. Do Nothing/Stick to Your Plan (“Ben Carlson Method”)
     • Stay diversified, rebalance occasionally if needed, keep contributing as usual.
     • “Doing nothing is a decision, and the right one most of the time for most investors, as long as they have a plan in place.” ([09:30])
     • “You have to be comfortable sitting through drawdowns and volatility and avoiding FOMO.” ([09:55])

Adjusting Rebalancing for Bubbles

• Ben is open to “over-rebalancing” in extreme markets (e.g., shifting slightly away from stocks if valuations get extreme), but opposes “all or nothing” moves ([10:36]).

Special Advice for Retirees

• For retirees, being diversified and maintaining a liquidity cushion (cash, bonds) is vital – “You don’t want to sell stocks that are down. ...You want something else to carry you through.” ([11:34])

Behavioral and Emotional Angles

• "Find the torture you're comfortable with. That’s investing." – Ben, quoting Jerry Seinfeld ([12:13])

How Should Home Equity Factor Into Retirement Planning?

Question from Todd ([13:47]):

• Housing typically appreciates with inflation, but is illiquid and hard to count in spending rules like the 4% rule.
• Options for using home equity:
  • Downsizing: Sell, move to a smaller home, pocket the difference.
    • "Most baby boomers say they're never going to sell. ...But I wonder how many will choose this route when they realize ...there's so much equity there." ([14:45])
  • Renting After Sale: Lower cost, but emotional hurdle.
  • Borrowing Against Equity:
    • Home Equity Line/Loan – accessible but requires payments, often at floating rates.
    • Reverse Mortgage – available post-62, no payments, settled upon selling or death, but complex and not always family-friendly.
  • Inheritance/Estate Planning:
    • Allow home equity to pass to children, who benefit from stepped-up cost basis.
    • "Home equity is the inheritance for your children. ...but you need more liquid assets when it comes to financial planning. A house is not a great thing to use for financial planning." ([17:14])
• Fun aside: Duncan’s complaints about renting and lack of AC highlight practical downsides versus home ownership ([17:38]).

“Are You a Die with Nothing Guy?” – Philosophies about Saving and Spending

Prompt inspired by Bill Perkins’ “Die With Zero” ([18:38]):

• Ben critiques extreme frugality in personal finance:
  • “Do not, repeat, do not listen to their advice about spending money. They want you to delay gratification for the rest of your life... and are miserable because you never get to enjoy it.” ([18:49])
• On the trap of oversaving:
  • “I’ve had countless conversations ...with people who have more than enough money but cannot force themselves to spend and enjoy it. And I think that’s a sad way to go through life.”
• Personal evolution: Ben, former frugal saver, now embraces enjoying wealth after diligently saving.
  • “I’m more in line with the die with zero camp than the fire camp that says you should make do with very little.” ([22:01])
  • “My net worth will probably peak in my 50s and then it should be downhill from there because you should be spending your money while you still have your health.” ([22:01])
  • He recalls the impact of family loss to underscore prioritizing enjoyment with family now ([22:35]).
• On balance:
  • “I am all about seeking balance in life. ...I save and invest so I can spend the rest and not have any guilt about buying shoes or a new shirt or taking a trip with my family.” ([24:20])
• Notable Quote:
  • “Your 401k will not give you cherished memories. ...Life is short. If you have money, you should enjoy some of it.” ([21:12])

Is Hiring a Financial Advisor Worth It?

Question from an anonymous listener with $5.5 million in investable assets ([25:23]):

• Ben’s framework:
  • No “perfect” fee model. The worth of an advisor depends on the services provided and the value the client perceives.
  • If you question the value, maybe the service isn’t comprehensive enough for your needs.
  • “Setting your price is like setting a screw. A little resistance is a good sign.” – quoting Harry Beckwith ([26:43])
  • Surround value not just in managing money, but offering unexpected services or advice you wouldn’t have found yourself ([28:30]).
    • "I think that's how you know you have a good advisor. Like, 'Oh, I never thought about this...'" ([28:52])
• Fee justification increases with complexity; those comfortable and competent may not need full-service management.

Duncan’s Point:

• The more assets you have, the bigger small mistakes become, possibly justifying the advisor’s fee ([29:58]).

What Is “Upper Middle Class” Really?

Question from Michael ([30:48]):
Challenge: social/media definitions of “upper middle class” use standards out of reach for many (e.g., $1.5M homes, expensive private education, high daycare costs). Who is upper middle class?

• Ben:
  • Hardline numbers are misleading; most people don’t know where they fit on the wealth scale.
    • “I think the problem is most people in their own minds have no idea where they actually sit on the wealth scale.” ([33:15])
  • Pew/US Census data suggests 19% “upper class,” but absolute and local factors matter; wealth concentration at the top distorts perceptions ([33:54]).
  • The asset composition skews wealth inequality – the top 10% own 87% of stock ([34:30]).
  • “Hope springs eternal in America. And we all think at some point we're going to be in the top 1% or maybe the top 10%. ...by definition, we can’t all be in the top 10% or the top 1%. It’s impossible.” ([35:55])
  • Factors like visible wealth, access to information (e.g., via Zillow/Glassdoor, social media), and local comparisons drive perceptions and discontent ([36:37], [36:47]).

Memorable Quotes and Moments

| Timestamp | Quote / Moment | Speaker | |-----------|----------------|----------| | 02:30 | “They laid down railroad tracks to places where towns didn't even exist... That bubble put England way ahead.” | Ben Carlson | | 03:05 | “Everyone knows when we're in a crisis. That's easy. No one knows exactly when we're in a bubble.” | Ben Carlson | | 04:50 | “When I see a bubble forming, I rush to buy, adding fuel to the fire.” (quoting Soros) | Ben Carlson | | 09:30 | “Doing nothing is a decision, and the right one most of the time for most investors, as long as they have a plan in place.” | Ben Carlson | | 12:13 | “Find the torture you’re comfortable with. That’s investing.” (quoting Jerry Seinfeld) | Ben Carlson | | 17:14 | “A house is not a great thing to use for financial planning. ...It's just not because it's too illiquid and it's hard to get the money out unless you just sell it.” | Ben Carlson | | 21:12 | “Your 401k will not give you cherished memories. ...Life is short. If you have money, you should enjoy some of it.” | Ben Carlson | | 24:20 | “I am all about seeking balance in life. ...I save and invest so I can spend the rest and not have any guilt about buying shoes or a new shirt or taking a trip with my family.” | Ben Carlson | | 26:43 | “Setting your price is like setting a screw. A little resistance is a good sign." (Harry Beckwith) | Ben Carlson | | 33:15 | “I think the problem is most people in their own minds have no idea where they actually sit on the wealth scale.” | Ben Carlson | | 35:55 | "Hope springs eternal in America. ...by definition, we can’t all be in the top 10% or the top 1%. It’s impossible.” | Ben Carlson |

Timestamps for Key Segments

• 02:01 – Main bubble investment question and historical analogies
• 04:42 – Four strategic responses to bubbles
• 09:30 – The wisdom of “doing nothing”
• 11:13 – Adjusting asset allocation for retirees
• 13:47 – Home equity in retirement
• 18:38 – “Die with zero” and balancing spending vs. saving
• 25:23 – The value/fees of hiring a financial advisor
• 30:48 – Defining “upper middle class” and media misconceptions

Summary Takeaways

• Spotting bubbles in real time is nearly impossible; diversification, discipline, and self-awareness are crucial regardless of your market view.
• Resist making extreme portfolio adjustments based solely on the fear of a bubble.
• Understand your own behavioral tendencies around saving and spending; strive for balance, and don’t let fear or social media distort your financial self-assessment.
• Home equity is a poor planning tool for daily withdrawals but can be useful through downsizing, borrowing, or legacy planning.
• The real measure of upper middle class is contextual, relative, and deeply shaped by both local economics and national wealth concentration.
• Financial advice is most valuable when it adds unexpected insight and peace-of-mind, not just numbers.