You know the story. A boy keeps shouting that there’s a wolf, nobody comes, and the one time a wolf actually shows up, he’s on his own.
For the past several years, financial commentators have been pointing at market valuations and warning that stocks are expensive. And for the past several years, the market has largely ignored them and kept climbing.
Past performance may not indicate future returns, but it does skew our expectations. This is especially true right now, because the past 15 years have been incredible, favoring those who took on more risk than they may have realized.
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After a while, you stop listening to the warnings. That’s the dangerous part of the fable. The boy was wrong several times. But in the end, there was a wolf.
The data tells a story worth hearing
The Shiller P/E ratio (CAPE) divides the S&P 500’s price by its average inflation-adjusted earnings over the prior 10 years. As of mid-2026, it sits at roughly 41, which is a level exceeded only by the dot-com peak.
(Image credit: Mike Decker)
Each dot in the chart above represents the S&P 500 on the first trading day of a given year, plotted against the real total return investors earned over the following decade. The pattern is clear: Every time valuations have reached these levels — 1929, 1966, 2000 — the subsequent decade delivered flat or negative real returns.
Not every time was a crash. But every time was a long, frustrating stretch of going nowhere.
I wrote about this pattern in my article Four Historical Patterns in the Markets for Investors to Know. Historically, the market has gone flat for 10 or more years roughly every 20 years or so. We’re now 16 years from the last one.
Innovation is real: Bubbles are, too
To be clear, this isn’t a call to sell everything and hide in cash. New technologies, such as the railroad, the automobile and the internet, created genuine, lasting economic value. AI will likely do the same.
The problem isn’t the innovation. The problem is what happens when everyone wants in at the same time.
Railroads were revolutionary. The railroad bubble of the 1840s still wiped out investors. The internet changed the world. The Nasdaq still fell about 78% from 2000 to 2002. Good technology and bad timing can coexist.
The flip side is just as important
This chart tells the mirror story. At the end of every flat-market cycle — 1921, 1932, 1982, 2009 — valuations were depressed, and the subsequent decade rewarded patient investors handsomely.
(Image credit: Mike Decker)
This is one of the reasons I wrote my book, How to Retire on Time. I fear that too many people believe they can retire and use the same systems they have used for the past 15 years.
It’s easy to retire when the markets only go up. It’s a completely different story when the markets go flat.
If you consider that retirement may be 20 to 30 years, there’s a good chance a part of your retirement could be during a flat-market cycle.
What that means in practice
It’s not about trying to time each crash with active trading. It’s not about riding the market up and down with your fingers crossed. It’s about understanding price, recognizing when the market is offering a good deal and when it isn’t and having a strategy that responds accordingly.
Patience is the foundation.
Beyond that, it means looking at tools that many investors overlook. Guaranteed income from an annuity can help stabilize your plan and portfolio, even if your stock portfolio doesn’t perform (see the DIY Annuity Guide).
Bond funds may be making a comeback as an uncorrelated market to help stabilize your portfolio.
Real estate (not a stock of real estate companies, but something tied to actual real estate) can provide income and diversification that equities simply can’t replicate.
It is important to take a step back as you approach retirement, or any new phase of life, and consider updating your plan. Perhaps it’s time to diversify not just by asset class, but by markets and by strategies.
Here’s the challenge: Many of these alternative strategies aren’t readily available to retail investors through a standard brokerage account. That’s one reason it may be worth sitting down with a fiduciary financial planner who can provide access to a broader set of tools, even if it’s just a one-time engagement to build a plan you can execute yourself.
The wolf may or may not be at the door. But the shepherd who has a plan doesn’t need to panic either way.