Understanding the CAPE (Cyclically Adjusted Price-to-Earnings) ratio and SORR (Sequence of Returns Risk) matters if you’re investing in the stock market and making future plans based on those investments. These metrics provide a stable benchmark for valuation and can help identify market bubbles or periods of undervaluation; they’re important to understand and can help inform your future plans.
Andrew joins this week’s podcast as we talk about:
– What CAPE ratio and SORR stand for and how to calculate them
– How CAPE ratio is different from the standard P/E ratio
– The methodology behind the CAPE ratio calculation and SORR
– Why you’d want to understand these metrics
– How these metrics might influence your early retirement plans and timing
– Strategies to mitigate SORR
Show References:
- Podcast intro music: Round and Round by Clap for Daylight
- Inside Out Money episode #003 – How and why to invest in index funds
- Inside Out Money episode #022 – How much do you need to retire? Flaws in the 4% rule
- Inside Out Money episode #039 – What’s in our wallet? Our index funds, accounts, and more!
- Inside Out Money episode #052 – Simplifying our finances – How we’re saving $20K by ditching robo-investing
- Inside Out Money episode #058 – Breaking up with your financial planner – Why and how to do it
- friends on FIRE podcast #148 – 8 ways to tackle your financial fears
- friends on FIRE podcast #112 – How to know if you are FI
- Wealthfront high-yield savings accounts
- Andrew on Instagram!
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