Using Shiller PE as an investment timer is a bad idea--see Hussman funds.
Using it to tweak investment allocations (from over to comparatively undervalued) is not a bad idea--I did a version of that in 1999-2002 and in 2006-8 and am now rebalancing to foreign stocks, but YMMV.
I see Dallas made my point above, which was to consider pulling some or a lot of gains from overvalued markets to undervalued, which would be Emerging Market, Europe, perhaps China, etc, perhaps on a slow and steady periodic reallocation. If the US continues to soar, you will continue to benefit on your prior allocation but also have side bets from the reallocations. I've done this over the last 14 years, which smoothed out both the high years and the low years since there generally was an undervalued market jumping--other than late 2008/9.
The market can stay irrational longer than you remain solvent or sane. (Or earnings can accelerate to justify the PE--the essence of growth investing.) And the 2008 crash was a once or twice in a lifetime anomaly, which raises some caution in the Schiller 10 data--one would think. Will Texas score <10 points against OU every year and get beat by 50 points?
Using Schiller PE10 to tweak a safe withdrawal % guide is an interesting thought that makes intuitive sense, although I'll think about it more.
Using it to tweak investment allocations (from over to comparatively undervalued) is not a bad idea--I did a version of that in 1999-2002 and in 2006-8 and am now rebalancing to foreign stocks, but YMMV.
I see Dallas made my point above, which was to consider pulling some or a lot of gains from overvalued markets to undervalued, which would be Emerging Market, Europe, perhaps China, etc, perhaps on a slow and steady periodic reallocation. If the US continues to soar, you will continue to benefit on your prior allocation but also have side bets from the reallocations. I've done this over the last 14 years, which smoothed out both the high years and the low years since there generally was an undervalued market jumping--other than late 2008/9.
The market can stay irrational longer than you remain solvent or sane. (Or earnings can accelerate to justify the PE--the essence of growth investing.) And the 2008 crash was a once or twice in a lifetime anomaly, which raises some caution in the Schiller 10 data--one would think. Will Texas score <10 points against OU every year and get beat by 50 points?
Using Schiller PE10 to tweak a safe withdrawal % guide is an interesting thought that makes intuitive sense, although I'll think about it more.
Last edited: