Originally Posted by
742Dash
The current Shiller P/E for the S&P 500 is 34.26. The historic mean is 16.78.
The current combination of valuations and interest rates is unprecedented, and a reasonable person might want to DCA into this market. I saw this kind of confidence before as the year 2000 dawned, and it then took 15 years for the Nasdaq to recover (17 years if you consider inflation). The S&P 500 took 12 1/2 years, and for the 10 year period from March 2000 to March 2010 the real S&P 500 return with dividends reinvested was minus 24.68%.
It’s not just valuations and interest rates that are unprecedented, it’s the trillions of dollars of stimulus money being pumped into the economies around the world. In this environment, even with P/E ratios this far out of whack, where can one deploy capital and receive a reasonable rate of return? Asset values are high, and they will continue to rise because there is no other better option.
I’m not brushing aside your concerns, because they are indeed the most unprecedented things we’ve seen in 100 years. Some day in the future the music will stop and we’re all going to wake up with a massive hangover. Until then: eradicate debt, diversify investments, and plan for a rainy day. That being said, I still have about 2/3 of my net worth tied directly to the stock market and am content with that risk/reward ratio.
I also notice that you’re retired. One’s time horizon definitely determines one’s comfort level with volatility. I assumed the OP was thinking in terms of multiple decades. If you’re touching this nest egg in less than 5-10 years that changes quite a bit.