By David Weidner
The economy and the stock market are at a breaking point. Here’s what to do, depending on your age.
Stock-market booms always end the same way: Optimism outruns reality, then prices correct.
Investing can be summed up in two words: risk tolerance.
If you’re like me and you’ve been hanging around investing websites for the past few weeks, you’re probably a little confused. One crowd is in full alarm mode: The underlying U.S. economy is weakening; consumers are hurting; layoffs are rising. There’s an “AI bubble,” they say, and “We’re headed for a crash.”
Then there’s a group that couldn’t be more bullish about the stock market. They point to the Federal Reserve aiming to lower rates. They point to a business-friendly administration in Washington. That AI bubble? Not a bubble at all. It’s the dawn of a new age of industry – and there’s plenty more value to come.
The market has responded. The month of November saw one of the biggest stock-market selloffs and one of the biggest rallies of the year so far.
Uncertainty is at a fever pitch, but here’s the important thing to remember: Regardless of whether the bulls or bears are right, basic investing principles work. And those principles can be summed up in two words: risk tolerance.
The only investing advice worth listening to starts with a simple question: When will you need the money?
That means, the only investing advice worth listening to starts with a simple question: When will you need the money?
Everything else – valuation metrics, Federal Reserve signals, stock tips, even AI hype – comes after. Investors with decades ahead of them can afford to be wrong for a while; time heals market wounds. But if you’ll need that cash in the next few years – for college tuition, a down payment on a home or retirement income – your timeline doesn’t allow for recovery.
The difference between long-term and short-term investors isn’t intelligence or insight. It’s liquidity. Long-term investors have the luxury of riding out even the ugliest corrections. Short-term investors don’t. For them, a bear market isn’t a paper loss – it’s money they need that just vanished.
Déjà vu, but with GPUs
We’ve seen this movie before. In 1999, internet stocks traded at nosebleed valuations. Cisco Systems, Intel and AOL were the “can’t miss” winners of the digital age. Three years later, the Nasdaq COMP had lost almost 80% of its value.
AI isn’t the internet circa 1999 – it’s real, already embedded in products and business models – but markets don’t trade on logic, they trade on narrative. The narrative right now is that AI will transform everything immediately. That’s just not how revolutions work.
When you strip out the Big Tech “Magnificent Seven,” the S&P 500’s SPX year-to-date gain shrinks from more than 16% to roughly 7%. Those seven companies – Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOG) (GOOGL), Meta Platforms (META), Nvidia (NVDA) and Tesla (TSLA) – account for nearly a third of the index’s market cap and about 40% of its returns.
That’s not a broad-based rally; it’s concentration risk disguised as innovation. At some point, valuations will collide with earnings reality. When that happens, a 10%-to-15% market correction will feel mild.
Read: Alphabet and Nvidia alone make up a third of the S&P 500’s gains this year, in a sign of Big Tech’s dominance
Should you worry? That depends on how old you are.
If you’re living off your investments, the next correction isn’t a theoretical problem – it’s an income crisis.
Not everyone needs to head for the exits. Investing decisions should follow time horizons, not headlines. Here’s the simplest way to think about it when it come to the age of the investor:
Gen Alpha and Gen Z: The under-30 crowd has 40 to 50 years ahead of them. They can take risk, even make mistakes. For them, the AI bust – when it comes – will look like a buying opportunity.
Millennials: Still in their 30s and early 40s, they’re still building wealth and careers. Volatility hurts, but time is still their ally. Keep investing but rebalance. The next decade’s winners may not look like today’s.
Gen X: The pre-retirement class. They’re approaching the liquidity zone – kids, college, aging parents. This group should already be shifting toward safety: 50/50 stock-bond portfolios (including cash reserves and Treasurys).
Boomers and the Silent Generation: If you’re living off your investments, the next correction isn’t a theoretical problem – it’s an income crisis. Selling during a downturn locks in losses you can’t recover. The best move now: Take profits, move to guaranteed instruments and wait out the storm.
Wealthier investors can stretch these boundaries – trust income and diversified portfolios give them more cushion – but even they know when to de-risk. Preserving capital is how fortunes survive generations.
The lesson of 2000
When the dot-com bubble burst, the market punished everyone equally. But time favored the young. Investors who bought Amazon at its IPO and held through the crash saw it fall 95% – and still turned every dollar into hundreds later. Alphabet and Apple rewarded patience, too.
Yet retirees in 2000 didn’t have the luxury of waiting 10 years for the rebound. Many sold in despair, locking in permanent losses. The recovery came – but too late for anyone who needed cash for tuition, retirement or healthcare.
Stock-market booms always end the same way: Optimism outruns reality, capital floods in – then prices correct. The best companies prove the hype was half-right all along. AI stocks will likely follow a similar trajectory: painful short-term correction, long-term rewards. The winners – Microsoft, Nvidia, and the newcomers we don’t yet know – will grow into their valuations. But for those who’ll need liquidity in the next five years, there’s no guarantee of being around to see it.
What the smart money is doing
Institutional investors are already rotating positions. Pension funds are boosting cash positions. Corporate buybacks have slowed. Bond yields remain attractive, with 10-year Treasurys offering a safe, liquid alternative.
For retirees, here’s the playbook:
— Lock in gains from this rally.
— Move a meaningful portion into short-term bonds, CDs and Treasury bills.
— Keep a small stake in diversified stock funds, but don’t chase the AI train.
Warren Buffett famously said, “You only find out who’s swimming naked when the tide goes out.” Right now, the water’s warm, but the tide always goes out. If you need your money soon, get out now while the getting’s good. There will be another entry point when the fever breaks. It’s better to miss the last 5% of this rally than to lose the first 20% of the next bear market. Unless you don’t mind some very exhibitionist skinny dipping.
David Weidner writes about markets, money and the stories behind them. His work has appeared in MarketWatch, The Wall Street Journal, McKinsey Quarterly, The Deal and American Banker.
Plus: AI and tech stocks are giving ‘early 1999’ dot-com bubble vibes. Is their rally finished?
Also read: The biggest threat to your job isn’t AI. It’s that you’re still afraid of AI.
-David Weidner
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12-02-25 0820ET
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