U.S. stocks are rising like a hot air balloon with seemingly endless fuel. They gained 270 percent over the nine-year period ending July 3, 2018.

Because U.S. stocks are at an all-time high, plenty of experts are ringing an alarm. They say a crash is coming. Many forecasters think you should sell U.S. stocks to buy gold, bonds or international stocks. You might wonder if they’re right.

Unfortunately, most stock market forecasters are emperors with no clothes. From 2005-2012, CXO Advisory tracked 6,582 market forecasts made by leading economists and stock market experts. They correctly guessed the market’s direction just 47.4 percent of the time. In other words, coin flippers might have beaten them.

Other experts think they can forecast future profits. Some of them manage tactical asset allocation funds and hedge funds. In attempts to maximize returns, they play musical chairs with different asset classes. They constantly tweak their funds to try and gain an upward draft. One month, they might shift more into bonds. The following month, they might trade bonds for gold, international stocks or real estate income trusts.

Hedge fund investors can even short the market. If they think stocks will crash, they can bet against the market. If they’re right, they’ll earn big profits when collecting on those bets.

But, as I explained in a previous story, tactical asset allocation funds are like fast-talking boxers that can’t throw a punch. Most hedge fund managers are even worse.

However, this doesn’t mean U.S. stocks won’t crash. Robert Shiller’s Cyclically Adjusted PE Ratio (CAPE Ratio) might be the best predictor of future stock returns. When a market’s CAPE ratio is well above its historical norm, it usually indicates a weak decade ahead. When a market’s CAPE ratio is far below its historical average, investors can expect a strong decade of market growth.

On July 3, 2018, the U.S. stock market’s CAPE ratio measured 32.26 times earnings. That’s almost twice its average level. But what happened when U.S. stocks were last priced this high?

You might be surprised. CAPE ratios have their limitations. Sure, a high CAPE ratio might indicate ten rough years ahead. But that doesn’t mean stocks will crash this year or next. In fact, they might keep rising for another five years. The five years that follow might be the stinkers. The total ten-year gain might end up looking weak. But those that bail early could miss some healthy gains.

For example, U.S. stocks hit a record CAPE ratio of 32 times earnings in 1997. That’s the same level we’re at today. It’s even higher than it was in 1929. Prior to 1997, stocks had enjoyed the strongest bull market ever. Between 1982 and 1997, U.S. stocks averaged a compound annual return of 16.36 percent. Over this 16-year period, a $10,000 investment in Vanguard’s S&P 500 would have grown to $130,549. Federal Reserve Chairman, Allan Greenspan said the stock market level was irrationally exuberant.

So…should investors have sold U.S. stocks in 1997? Some jumped ship and put their proceeds in gold. But that was a mistake. Gold dropped almost 26 percent over the next five years.

Others pegged their hopes on international shares. But Vanguard’s International Stock Market Index (VGTSX) gained a paltry 0.41 percent over the next five years. Its compound annual return was just 0.08 percent.

Others sold U.S. stocks to buy U.S. bonds. But keeping U.S. stocks would have reaped bigger profits. Despite its nosebleed level and all the doom and gloom reports, U.S. stocks gained another 65.9 percent between 1997 and 2001.

What Happened The Last Time Stocks Were Priced This High?
Asset Class Performances - January 1997-January 2002

Amount Invested End Value
U.S. Stocks $10,000 $16,594
International Stocks $10,000 $10,041
U.S. Bonds $10,000 $14,244
Gold $10,000 $7,482

Investors, however, shouldn’t just own U.S. stocks. It’s smarter to diversify. Stock market predictions are almost never right.

Since 1997, diversified investors (if they were patient) should have done well. A low-cost, diversified portfolio of U.S. stocks, international stocks and U.S. bonds averaged a compound annual return of 8.17 percent between 1997 and 2007. That would have turned $10,000 into $23,726.

Between 1997 and 2018, a $10,000 investment would have gained a compound annual return of 6.88 percent. That would have turned $10,000 into $41,610.

So here’s my advice: Ignore market forecasts. Build a diversified portfolio of low-cost index funds. Make sure it includes U.S. stocks, international stocks and bonds. Rebalance it once a year and remember to be patient. Patience, low investment costs and diversification will trump speculation.

Things Worked Out Fine For The Patient and Diversified
1997-2007

Diversified Portfolio Of Low-Cost Index Funds $10,000 Would Have Grown to: Best Year Worst year Average Compound Annual Return
40 % U.S. Stocks
30% International Stocks
30% U.S. Bonds
$23,726 +25.84% -10.43% 8.17%

Things Worked Out Fine For The Patient and Diversified
1997-2018

Diversified Portfolio Of Low-Cost Index Funds $10,000 Would Have Grown to: Best Year Worst year Average Compound Annual Return
40 % U.S. Stocks
30% International Stocks
30% U.S. Bonds
$41,610 25.84% -26.53% 6.88%

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas