The Next Decade May Be Rough for Stocks By Dr. David "Doc" Eifrig Current market valuations scare me... The S&P 500 Index trades for 25 times earnings. That's higher than the average of 21 times earnings that the index has traded for over the past 10 years. And other valuation metrics – like price to sales, cyclically adjusted price to earnings ("CAPE"), or even free-cash-flow yield – also show that we're in an expensive market. Of course, valuations aren't a reason to sell everything. My senior analyst Jeff Havenstein and I have been recently telling you that we're in a healthy bull market. We believe there's plenty of upside left in this current run... First, not only are a wide range of stocks hitting new highs, but the S&P 500 made a new high earlier this year. According to Investment Strategy Group, the S&P 500 posts an average gain of 11.3% in the 12 months following a new all-time high. Second, there doesn't seem to be a widespread notion that folks can't lose in the market – the ultimate sign that stocks are going to crash. Still, market valuations worry me in the long term as I look further down the road... Let's revisit the CAPE ratio that I mentioned earlier. The CAPE ratio takes the regular price-to-earnings ratio and adjusts for fluctuations over the business cycle. The idea is that earnings are unusually low when things are bad and unusually high when things are good. Smoothing out earnings – then comparing them with current prices – gives a better indication of whether stocks are cheap or expensive today. The chart below shows the S&P 500's CAPE ratio versus the index's annualized return over the decade that followed. As you can see, the two metrics have an inverse relationship... This means the higher the valuation, the smaller a return we should expect from the market over the next 10 years. Unfortunately, the current CAPE ratio is getting close to all-time highs. That tells us that gains over the next decade will likely be on the lower end. So while you can be optimistic about the market in the short term (say, the next year or so), you should be concerned about how the market will perform over the next decade. This brings me to an important lesson I want to leave you with... Because valuations are so high, you shouldn't only focus on growth stocks. You need a balanced portfolio that's also filled with quality dividend payers. The next chart demonstrates just how important dividends are. It breaks down the S&P 500's total return each decade since the 1930s. Take a look... Notice what happened in the 2000s. Stock prices fell by nearly 2% that decade, but dividend payments were able to keep portfolios afloat. And over a span of 90 years, dividends were responsible for roughly 40% of the total market return. So based on the high valuations we're seeing today, you'll want to have consistent dividend payments over the next decade. Not only are dividends a great source of gains, but they can also compound your capital. Every quarter, they give you more money that you can invest. This lets your gains multiply over the long term. Now is the time to review your portfolio. If you are overweight growth stocks, think about adding some quality dividend payers. Earlier this month, we recommended one such company in my Retirement Millionaire newsletter... It's a real estate investment trust that's a premier dividend payer and that's trading near a 10-year-low valuation today. Considering that this company has increased its dividend for 22 years in a row – even as the market experienced recessions and drawdowns – it's a great way to add stability and income to your portfolio. If you're a subscriber, you can read about this company here. And if you're not already subscribed to Retirement Millionaire but would like access to this name and even more of my high-quality picks, click here. What We're Reading... Here's to our health, wealth, and a great retirement, Dr. David Eifrig and the Health & Wealth Bulletin Research Team
February 25, 2026
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