The S&P 500 index has never looked more expensive on one popular valuation gauge, but the long-term case for owning stocks still points in the same direction: stay invested. The benchmark hit an all-time high in August, yet its Shiller CAPE ratio suggests prices are stretched enough to revive talk of a bear market, even a sharp one.
That is why yahoo.com is drawing attention now. Investors are searching for a simple answer to a hard question: if the market cracks tomorrow, what should they do with money they plan to keep for years? History offers a blunt response. Since 1928, the S&P 500 has produced 10% average annual returns, and that kind of compounding is what turns regular investing into real wealth over time.
The numbers behind that argument are hard to dismiss. The S&P 500 has delivered a total return of 1,090% since the depths of the Great Recession in January 2009. A Vanguard S&P 500 ETF launched in September 2010 has returned about 15% a year over the past 16 years and more than 19.5% over the past year. On a simple growth path, someone who keeps putting in $600 a month at a 10% average annual return ends up with $1.18 million after 30 years. That works because the money stays invested long enough for gains to build on gains, not because every year is smooth.
The catch is that the market’s recent strength has its own warning label. The same stock leaders that helped push the index higher have also made it look crowded and expensive, and that is where the comparison to past bubbles starts to matter. The point is not that a crash cannot happen. It is that long horizons have repeatedly given investors room to recover from them. Even when valuations are rich, history says patience has usually beaten panic.
There is also a case for spreading risk beyond the S&P 500 rather than abandoning stocks altogether. The State Street SPDR S&P Midcap 400 ETF Trust holds 400 mid-sized company stocks and has 14.5% of the fund in tech, while the Vanguard Russell 2000 ETF owns 1,997 small-cap stocks with a median market cap of $3.6 billion. Both have delivered average annual returns of 11.3% over their reported periods, showing that investors do not need to rely only on the biggest names to pursue long-run growth. If a bear market starts tomorrow, the smarter move for many long-term investors is not to flee the market but to keep buying, and to widen the net beyond the most expensive part of it.
