Vanguard's S&P 500 Index Fund Yield 1.96%...Vanguard's European Stock Index Fund Yield 4.60%....A Dollar Cost Averaging Advantage for the Defensive Investor buying the European Fund!

Why UK shares have been cheaper than US shares since 1994

Chart of the week: Until the Nineties, investors saw British shares as deserving a higher valuation that those of American companies, but that pattern has now reversed.

The graph above shows how the Cape ratio has varied over the past few decades for the British and American stock markets. Naturally, both graphs have severe peaks and troughs, reflecting the fact that investors’ appetite for shares fluctuates wildly according to optimism about the economy, events in the wider world, the outlook for interest rates and other factors. 

But it reveals another curiosity. It shows that until about 1990 investors saw British shares as deserving a higher valuation that those of American companies, but that since then this pattern has been turned on its head and US shares have been more highly valued. 

This has been the case consistently for the past 25 years, apart from a very brief period in 1994.

“The tech bubble obviously drove valuations to excessive levels in the US, more so than in the UK. After it popped, I believe that the US Federal Reserve kept interest rates lower than the Bank of England. This difference in monetary policy could have supported higher stock market valuations in the US.”

DYI Comments:  I would like to draw your attention to the European markets their valuations are far lower than here in the U.S.  DYI's favorite is Vanguard's European Stock Index Fund symbol VEUSX.  Their current dividend yield is 4.60% a fast improvement to the S&P 500 yield of 1.86% .   Recommend dollar cost averaging only; with a clearly overvalued U.S. market when it begins its journey back to the mean all other world markets will be pulled down as well at least temporarily.

DYI