After posting three consecutive years of double-digit returns, only the eighth time it has happened since 1926, the stock market’s most important index, the S&P 500 (^GSPC 0.61%), has had a slow start to 2026. Through March 11, the index is down about 1% year to date.

Even so, the S&P 500 is still at historically expensive levels when looking at the Shiller price-to-earnings (P/E) ratio, also known as the CAPE ratio, in reference to cyclically adjusted price-to-earnings.

The Shiller P/E ratio looks at the S&P 500’s earnings over the past 10 years, adjusting them for inflation to prevent one-off events from skewing the numbers. As of this writing, the Shiller P/E is at 39.2, nearing the highest level since mid-2000.

Should investors be worried about the expensive market?

The last time the S&P 500 was this expensive was in the thick of the dot-com bubble. In November 1999, the Shiller P/E ratio peaked at nearly 44.2. From that point until the trough of the dot-com bubble in October 2022, the S&P 500 dropped by around 40%. 

In October 2021, the Shiller P/E ratio reached 38.5. From that point until the S&P 500 bottomed out in October 2022, the index dropped by more than 20%.

So, historically, an S&P 500 this expensive isn’t quite a reason to jump for joy. However, I can’t stress enough that just because it has happened in the past doesn’t mean it will happen again. Although it’s historically expensive, the situation with today’s S&P 500 isn’t the same as what we saw during the dot-com bubble or the 2022 bear market.

The dot-com bubble was fueled by widespread speculation and by companies without real earnings to justify their valuations, and 2022 was a time of cheap money and extremely low interest rates that led many investors to lose sight of potential risks.

Today, the expensive market is largely fueled by the current artificial intelligence boom and a handful of megacap tech companies. That doesn’t make it any better — just different.

S&P 500 Index

Today’s Change

(-0.61%) $-40.43

Current Price

$6632.19

How investors should consider approaching the S&P 500

My advice would be to use the dollar-cost averaging approach to investing right now — or at any time, for that matter. When you dollar-cost average, you put yourself on a set investing schedule and stick to it no matter what. You could make an investment every other Monday, every last Friday of the month, every time you receive a paycheck, or whatever makes sense for your situation.

It doesn’t matter whether prices are high, low, or stagnant; your objective should be to make your routine investments regardless. By dollar-cost averaging, you protect yourself against investing lump sums right before any sudden drops or pullbacks in the S&P 500. It’s not a foolproof method, but it helps.

But even if the S&P 500 does experience a huge drop or enters a bear market, there’s one positive that investors should hang on to: Every time the S&P 500 has done so, it has returned and produced impressive long-term results. Whether it was Black Monday (1987), the dot-com bubble (1999), the financial crisis (2008), or the 2022 bear market, the S&P 500 has bounced back.

Again, past performances don’t guarantee future success, but that’s one of the safer bets you can make in the stock market.

Consider an equal-weight S&P 500 ETF

If you’re concerned about how expensive and concentrated the current S&P 500 is, an alternative route is investing in an equal-weight S&P 500 ETF, such as the Invesco S&P 500 Equal Weight ETF.

Instead of being weighted by market cap, which has led to the high concentration of megacap tech stocks, a regular savings plan spreads its weight roughly evenly between all S&P 500 companies. This gives you the benefit of investing in S&P 500 stocks without relying so heavily on companies such as those that make up the “Magnificent Seven.”