Ask The Compound: How to Time the AI Bubble

Episode Date: October 29, 2025
Host: Ben Carlson (A), with Duncan Hill (B), and guest Bill Sweet (C)
Podcast Theme: Forward-thinking, practical advice on investing and personal finance—this week focusing on how to ride the AI bubble safely, when to exit, and other timely financial questions from listeners.

Episode Overview

This episode tackles the pressing question: Is the current “AI Capex boom” a bubble, and how do you get off the ride if it pops? Ben, Duncan, and Bill break down the art and science of navigating bubbles through momentum indicators and stop loss orders. They also field listener questions on retirement saving, buying a dream home, capital loss carryforwards, balancing college and retirement savings, and estate planning using vacation homes.

Main Topics and Key Insights

1. Timing an AI Bubble: Momentum Strategies and Stop Losses

(Main segment – 02:56–14:41)

• Listener Question: Can you profit from the AI bubble without risking major losses, using indicators or stop losses like during the 90s tech boom?
• Ben’s Take on Stop Losses:
  • “I don't have a ton of experience with stop loss orders. I think it can make sense in the right place…But you also have to be comfortable with the fact that you could get taken out from a short little correction, then the market moves higher.” (03:27)
  • Stop losses help manage risk but might trigger during minor dips, missing further gains.
• Trend Following ("Goaltender" strategy):
  • Explanation: Trend following uses rules, like moving average signals, to shift between stocks and cash. When asset prices fall below a moving average (e.g., 10-month), switch to cash; if above, stay invested.
  • “The idea is you're hoping for stock-like returns with less volatility, which sounds like it's almost fake.” (06:37)
• Real-world Backtesting:
  • Referencing Meb Faber’s work, Ben explains the system’s performance during 2008 and the dot-com bubble, noting it misses perfect tops/bottoms but dodges most of severe crashes.
• Downsides:
  • “You better do this in a tax-deferred account because if you're going to be jumping in and jumping out, you're going to have short-term capital gains.” (11:49)
  • Behavioral Hedge:
    • The system doesn’t time perfectly but can help reduce stress and prevent emotional selling.
    • “It’s a behavioral release valve for your portfolio.” (12:03)

Key Quote:

“You don’t buy insurance on your house hoping that it burns down. But sometimes the stock market does burn down and that’s when trend following can protect you.”
— Ben Carlson (10:35)

2. Retirement Planning at High Income – Roth vs. Traditional

(Roughly – 14:43–19:03)

• Listener Mark’s question: With high income and most assets in traditional retirement accounts, is it right to start splitting contributions between Roth and traditional as retirement nears?
• Bill Sweet’s Analysis:
  • Oregon is a high-tax state; Mark is in a 24% bracket—possibly prime for Roth, especially if not relocating post-retirement.
  • “If 95% of your assets aren't traditional and if you're not planning on moving out of the People's Republic of Oregon, I would probably favor more Roth because only 5%…are in Roth today.” (18:27)
  • Roth conversions after retirement may make more sense if income drops.
• State Tax Nuances:
  • “Anything above 7% is high.” (17:16)
  • Consider moving to states with no income tax (e.g., Washington).

3. Should You Buy Your Dream Home from Family?

(Segments – 20:08–26:14)

• Listener Alex’s scenario: Young, saved over $1 million, contemplating a big quality-of-life move by buying parents' high-end home (with a large down payment required).
• Ben’s Perspective:
  • “It's basically impossible to put a price on the feelings you get from a home you truly love. So it sounds to me like this is a dream forever home.” (21:29)
  • Points to possible opportunities for family deals (lower commission, internal mortgage).
• Bill’s Take:
  • “To be 31 with a million dollars of savings... this is a slam dunk, no brainer. Quality of life issue.” (23:26)
• Cautions:
  • Consider the illiquidity and opportunity cost (e.g., losing a 2.8% mortgage, rental potential for current home).
• Consensus:
  • The panel and chat overwhelmingly recommend pursuing the opportunity, emphasizing family benefits and financial flexibility.

4. Capital Loss Carryforwards – $90k! What Now?

(26:19–31:29)

• Listener’s Dilemma: $90,000 in losses, capped at $3,000/year by IRS. Any way to speed it up?
• Bill’s Recap:
  • “Section 1211 has been in the tax code since 1978, Ben. ... They did not adjust that number for inflation.” (27:40)
  • Offset losses only against realized gains (sell appreciated assets).
  • No trick—must wait or offset with gains (sale of business, property, etc.).
• Ben:
  • “That 3000 number always seems so low to me. I'll put it in my complaint jar and burn it.” (26:55)

5. Education vs. Retirement: Which to Fund First?

(31:41–35:02)

• Listener’s Question: New baby on the way, forced to choose between maxing retirement (401k/Roth) or starting a 529 college plan.
• Golden Rule:
  • “Put your oxygen mask down first.” (33:26)
  • Focus on retirement; fund 529 modestly if you can (even $100/month compounds).
• Flexible Options:
  • Roth IRA can double as college savings (basis withdrawn tax-free for education).
  • 529s have new Roth rollover options.
• Bill:
  • “I would prioritize retirement savings ... but a small drip into a 529 makes a lot of sense.” (33:59)

6. Vacation Home for Estate Planning – Smart or a Sell?

(35:07–39:21)

• Listener’s Angle: Buying a Florida vacation home now as both enjoyment and for favorable estate planning (step-up in basis).
• Panel Opinions:
  • Bill: Most assets except retirement accounts get step-up; vacation/single-family homes do. But estate planning shouldn’t be the sole reason.
  • Ben: “You make the family case, not the financial case. … The financial case is not going to win you any points.” (37:00)
• Practical Advice:
  • Always rent in your target area first to avoid regret (natural disasters, lifestyle fit).
  • “Life is short... I’d pull the trigger and figure it out later.” (38:07)

7. Miscellaneous: 529 Gifting and Uncle Duties

(41:02–41:39)

• Can you gift stocks to a 529?
  • Generally, 529 accounts offer only mutual funds or ETFs—not individual stocks, and certainly not “weird” or levered ETFs.
  • Bill: “I would avoid large pieces of plastic … education is probably the most important thing… any amount that you're donating … is very much well worth it.” (41:39)
• Easy 529 Contributions: Parents can share a contribution link—give the gift of compounding every birthday.

Notable Quotes & Memorable Moments

• On trend following vs. buy-and-hold:
  “Returns are pretty similar over time (trend vs. buy & hold). Volatility is lower. … It's about a third lower …”
  – Ben Carlson (06:35)

• Testing fast crashes:
  “If you have a 1987 crash … the strategy is not going to get you out.”
  – Ben Carlson (09:49)

• Inheritance and step-up:
  “If Rich died and his vacation home was worth a million bucks in Florida, but he paid 500 grand for it…For his kids, the cost basis is a million, not 500 grand.”
  – Ben Carlson (36:06)

• On house upgrades from family:
  “The only potential awkward situation: You move in and you like renovate the kitchen and mom and dad go, wait, whoa, whoa, whoa. Hey, we like the kitchen.”
  – Ben Carlson (23:53)

• On Congress and taxes:
  “Our Congress folks, they don't legislate based on what makes sense, Duncan. They legislate based on what looks good on TV.”
  – Bill Sweet (31:34)

Important Timestamps At-a-Glance

• [02:56] – How to use stop losses and trend following to ride an AI bubble
• [06:37] – Trend following: returns, volatility, and historical performance
• [14:43] – High-income Roth vs. Traditional 401k planning
• [20:08] – Buying your parents’ house: Financial vs. lifestyle case
• [26:19] – Capital loss carryforwards ($90k!) strategies
• [31:41] – Saving for retirement vs. 529 college plans
• [35:07] – Vacation homes as estate planning tools and step-up basis
• [41:02] – Can uncles gift stocks to 529s? 529 gifting tips

Final Thoughts

• Momentum strategies and trend following can cushion downside risk but require discipline, comfort with delays, and attention to tax consequences.
• When tough trade-offs (Roth/traditional, college vs. retirement, splurging on a home) arise, focus on diversification, long-term flexibility, and, above all, balancing personal happiness with prudent financial planning.
• Almost every tough financial decision contains a behavioral component—sometimes, the right “move” is whatever lets you sleep best at night.

For more questions or to participate, email the show at: ask the compoundshowmail.com