Navigating Market Cycles With Shiller’s CAPE Ratio

The CAPE ratio empowers long-term investors to navigate volatile markets, forecast returns and make smarter decisions grounded in historical valuation trends.

The stock market has recently felt like an emotional roller coaster: optimism during bull runs, anxiety during market corrections and despair during crashes. This volatility creates a persistent challenge for individual investors: How do you make rational investing decisions when markets seem increasingly irrational?

This is where Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio enters the conversation. Unlike many trendy market indicators that come and go, the CAPE ratio has stood the test of time, providing investors with a compass to navigate market cycles over the past century.

The CAPE ratio provides historical context spanning multiple economic eras. This article explores how individual investors can use the indicator to make more informed decisions about asset allocation, market risks and rewards, and long-term returns.