Professor Robert Shiller of Yale University is worried about valuation levels. Judging by the cyclically adjusted price/earnings ratio (Cape), the valuation measure he helped to popularise, US stockmarkets have rarely been more expensive than they are today. The Cape (or Shiller p/e) shows how pricey stocks are compared with average earnings over ten years. Higher Cape levels are a pretty reliable indicator of lower future stock returns. Indeed, if the Cape's forecasting power holds up, Shiller reckons that investors should expect real (after-inflation) returns of about 1% a year over the next decade.
Even so, he wouldn't suggest that you give up on stocks completely. After all, the Cape ratio has been at historically high levels for the past 20 years (with a few rare exceptions), and the market isn't yet as overvalued as it was during the tech bubble of 2000. So while the market is "high enough to make me nervous", Shiller isn't predicting "imminent disaster". And holding even a small quantity of shares can provide diversification benefits for investors.
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