What is the CAPE Shiller P/E ratio?

The CAPE ratio, also called the Shiller P/E or cyclically adjusted price to earnings ratio, divides the price of the S&P 500 by its average inflation-adjusted earnings over the past 10 years. It was developed by Yale economist Robert Shiller, who shared the 2013 Nobel Prize in economics.

Why use 10 years of earnings?

One year of profits can be misleading, because earnings collapse in recessions and swell in booms. Averaging a full decade smooths out the business cycle and gives a steadier picture of how expensive stocks are.

How to read the ratio

The long-run average since 1871 is about 17. Readings below 10 have historically been followed by strong returns over the next decade, and readings above 30 by weak ones. The tool shows the typical 10-year return from each starting level, based on the full history.

What it means for your retirement

A high CAPE does not predict a crash, but it shows how much optimism is built into stock prices. Many investors respond by diversifying into assets that do not depend on corporate earnings, such as physical gold. Our free Gold IRA Guide explains how to hold gold in a retirement account.

This tool is for educational purposes only and is not investment advice. Past performance does not guarantee future results.