Why VOO Makes More Sense as a 20-Year Hold Than a 2-Year Trade, Even at Today's Valuations
The stock market is trading at historically expensive levels. That doesn't mean long-term investors should shy away from the S&P 500.
Why VOO Makes More Sense as a 20-Year Hold Than a 2-Year Trade, Even at Today's Valuations
Overview
A lot of fuss is being made right now about the Shiller CAPE ratio and what that means for equity market returns going forward. This ratio measures the price of the S&P 500 (SNPINDEX: ^GSPC) relative to inflation-adjusted earnings over the past 10 years -- and it is currently sitting at 42.
This ratio has only been this high one other time in history: just before the tech bubble burst in 1999. In fact, if you want to look at the only other time this number has even been above 30 (prior to this past decade), you'd have to go back to 1929, right before the Great Depression. That's not exactly good company to be in.
Studies have also shown that investing when valuations are higher tends to produce lower forward-looking returns and vice versa. Drawdowns at higher valuation starting points tend to be deeper as well.
Details
Source
Originally published at www.fool.com.
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