Bubbly

At what point does the advice to “invest in an index fund and forget about it until you retire” become insufficient advice?

Because I’m not a financial planner. I’m not even an active investor. I’m an economist who follows the standard economist dictum regarding passive investing and low-fee index funds. But at some point the, if we take parallels to the past seriously, there arises the question of whether a 40 year old with a 100% index fund portfolio should consider hedging/reallocating their porfolio a decade sooner than they planned on becase, well, just look at that chart.

Maybe AI is great. The internet certainly was an is pretty great. But that doesn’t mean there won’t be a massive dotcom bubble-esque correction, and a 20% hedge can be the difference between 4 years getting back to even versus 7 years getting back to even. Even at the risk of misisng out on some growth in the longer term, the calculus with basic risk aversion checks out.

So, seriously. Are we hedging? And what are we hedging into? Asking for a friend. Who is an economist. And also me.