Dollar-Cost Averaging Into S&P 500 ETFs Has Never Failed, History Shows

The S&P 500 is trading at historically extreme valuations, with the CAPE ratio near 41 and the Buffett indicator at 236%, signaling a high probability of a correction, but history shows that dollar-cost averaging into a low-cost S&P 500 ETF has never failed over long market cycles. The cyclically adjusted price-to-earnings ratio, which smooths 10 years of inflation-adjusted earnings, is more than double its long-run average of 18 and approaches dot-com era extremes. The Buffett indicator, comparing total U.S. stock market capitalization to GDP, also sits far above the 100% threshold that historically marks overpriced conditions. These metrics flag a narrowing margin of safety, though they do not predict exact timing. Unlike the speculative dot-com bubble, today’s market gains are concentrated in mega-cap tech firms with real earnings and strong balance sheets, including Nvidia, Apple, and Taiwan Semiconductor. While a pullback likely will occur, the underlying profitability provides a sturdier foundation, and the S&P 500 has always recovered from past recessions and valuation extremes, supporting the strategy of regular investing.