The Stock Market Hasn't Been This Expensive in Decades. Should Investors Prepare for a Crash?

Since 2022, the S&P 500 has seen a remarkable 91% rise, making the market more expensive than at any point in decades. The Shiller P/E ratio, which measures average inflation-adjusted earnings of S&P 500 companies over 10 years, reached a record high of 40.7 in early October, mirroring the peak during the dot-com bubble. This historical high suggests that the market may be setting itself up for a crash, similar to the 49% drop between March and October 2022.

However, rather than preparing for a crash, investors should understand that crashes are an inevitable part of the stock market cycle. While crashes can be a good opportunity to buy shares at a lower price, they can also cause significant losses for those nearing or in retirement. Investors should focus on time in the market rather than timing the market, as staying invested allows them to benefit from the market's best-performing days and avoid missing out on significant gains.