The stock market is proving that it’s one of the best means of building wealth.
The S&P 500 index has generated a total return of 305% in the past 10 years (as of July 28)
On a per-year basis, this is a 15% gain. But history says that the widely followed benchmark is expensive. Should investors still consider buying the Vanguard S&P 500 ETF (NYSEMKT: VOO) right now?
As of this writing, the cyclically adjusted price-to-earnings (CAPE) ratio, a popular valuation metric that looks at 10-year inflation-adjusted profits, is just shy of 40.5. Outside of the dot-com bubble period at the turn of the century, this figure has never been this high. According to research from Invesco that looked at data since 1983, a starting CAPE ratio over 40 implies negative annualized returns in the coming decade.