Passive investing, with a dash of market timing

Blog post at Pop Economics

But as tough it is to see if the market is slightly over or underpriced, it’s actually pretty easy to see if it’s way over or underpriced.

Looking back at market prices and earnings for a little more than 100 years, Shiller found that the market’s average P/E10 (the shorthand when you use 10-year earnings) was about 15. What’s more, if you invested when the market was at a high P/E10, your returns for the next 10 years were almost certain to be much less than if you invested when the P/E10 was below 15.

Based on the CAFE10 metric, you slightly tilt your portfolio towards stocks or bonds.

Robert Shiller's CAFE10 Data
updated monthly