The S&P 500 and Nasdaq Composite have more than doubled since early 2023, while the S&P 500's Shiller CAPE reached 41. A Schwab comparison of five investing approaches over 20 years shows the potential cost of waiting for a better entry point.
The S&P 500's Shiller CAPE has crossed 40 only once before: during the dot-com boom. Since early 2023, the S&P 500 and Nasdaq Composite have both more than doubled. Those figures point to risk, but they do not tell investors that a market peak has arrived.
Artificial-intelligence developments and hopes for future earnings have helped support the bull market. But strong momentum and high valuations cannot tell investors when prices will turn. Reuters reported that AI shares helped support the market as investors watched Treasury yields and tensions in the Middle East, as described in its market update. For people investing through workplace retirement plans or brokerage accounts, the practical question is whether their plan can withstand a decline, not whether they can guess the next high or low.
From Sept. 21 to 24, the S&P 500 stayed near records: it rose 1.49% to 7,764.70 on Sept. 21, closed almost flat at 7,764.64 on Sept. 22, fell 0.75% to 7,706.05 on Sept. 23, and finished nearly unchanged at 7,704.13 on Sept. 24.
What the CAPE measures
The Shiller CAPE compares the S&P 500's value with the index's earnings over the previous 10 years, adjusted for inflation. It uses a decade of earnings to smooth out the effect of any single unusually strong or weak year. According to the figures in the article's underlying data, its long-run average over roughly the past century and a half is 17.8.
The ratio has topped 40 only twice in that period. It did so in late 1999 and early 2000, before the dot-com bust. The S&P 500 eventually lost nearly half its value. This month, the CAPE reached 41; in early 2000, it reached 44. The comparison is worth watching, but it does not mean the market will follow the same path or that a decline must start now.
Reuters reported that the S&P 500 traded at just under 19 times expected earnings that week, its lowest forward valuation since 2023, according to LSEG data. Investors were also weighing AI-led gains against rising Treasury yields and Middle East geopolitical risks.
CAPE measures valuation, not short-term market timing. It can show that prices are high compared with a long history of earnings, but it cannot reliably say how long high valuations will last. Investors weighing that risk alongside their technology exposure can also consider the valuation trade-offs that come with concentrated market leadership.
Why timing is difficult
Selling because valuations look stretched means getting two calls right: when to leave and when to return. The market may keep climbing after an investor sells. Time in cash can mean missing gains. After a decline, the investor must still decide when the fall is over. The CAPE cannot answer that question.
Regular investing is different from trying to predict the market. Investors who contribute on a schedule buy at different prices over time. They do not need to find one perfect entry point. The approach cannot prevent losses or guarantee a profit. It gives investors a process they can stick with in both rising and falling markets.
There is no sure signal.
What the comparison shows
A Schwab study compared five investing styles over 20 years. Investing $2,000 a year gave the hypothetical perfect timer a portfolio worth $186,000. A once-a-year investor ended with $170,000, while monthly dollar-cost averaging produced $166,000. Even the investor who bought on the highest day of each year ended with $151,000. Only the person who did not invest at all finished behind those investors.
These are modeled results, not a forecast or a promise that investors will reach the same balances. The perfect timer's result depends on knowing the best time to buy in advance. Real investors cannot count on doing that repeatedly. The study makes a narrower point: in this 20-year comparison, imperfect timing cost less than staying out of the market.
The gap was smaller than many expect.
Consistency has limits
Regular contributions do not replace a portfolio that fits an investor's time horizon, risk tolerance and financial needs. Someone who may need the money soon faces a different risk from someone investing toward a distant goal. A broad index fund still rises and falls with the market it tracks. Investors can also lose money if they have to sell during a downturn.
Dollar-cost averaging means investing a set amount at regular intervals instead of putting in the full amount at once. When prices are lower, each contribution buys more shares. When prices are higher, it buys fewer. The method can make the timing of contributions less important, but it does not guarantee a better return than investing a lump sum. Nor does it protect against a long decline.
Major indexes have more than doubled since early 2023, and the CAPE is unusually high. Neither momentum nor valuation works as a market clock. Investors can focus on matching risk to their time horizon and following a plan they can sustain.
