Is the Market Overvalued? Three Indicators Say Yes—And Why You Should Care About Your Portfolio Draw Date

The S&P 500 hit another all-time high on Wednesday. Again.

Your TSP balance looks better than it ever has. Your brokerage account is up 20%+ for the year. Everyone's talking about AI stocks and how much money they're making.

But here's the question I keep hearing from clients: "Should I be worried? Is now the time to sell and sit on cash?"

Let me show you what three major market valuation indicators are telling us, what Warren Buffett just did with $4.9 billion, and why your Portfolio Draw Date (PDD) matters more than any of these indicators.

The Gold Rush of 2025: What It's Really Telling Us

Before we look at stock valuations, let's talk about gold. Because gold's performance this year is sending a signal that most investors are missing.

Gold hit $4,118 per ounce in October 2025—a stunning rise that caught even seasoned investors off guard. According to Aswath Damodaran, NYU Stern professor and one of the most respected voices in valuation, this surge isn't random. It's telling us something about investor psychology and market conditions.

Damodaran notes that gold prices historically move with three factors:

• Unexpected inflation (not just high inflation, but unexpected high inflation)
• Equity risk premiums rising (when stocks get scarier)
• Real interest rates falling (when bonds pay less than inflation)

But here's what's interesting about 2025: We don't have hyperinflation. We don't have a major market crash. Yet gold is surging anyway.

Why? Damodaran points to what he calls "the mistrust effect"—investors are losing faith in central banks, questioning the strength of the U.S. dollar, and seeking a safe haven that governments can't print more of.

When gold rallies this hard without an obvious crisis, it's usually because smart money is hedging against something. Let's look at what that "something" might be.

Valuation Indicator #1: The Shiller PE Ratio (CAPE)

The Cyclically Adjusted Price-to-Earnings ratio, developed by Nobel Prize winner Robert Shiller, smooths out earnings volatility by using the average inflation-adjusted earnings from the previous 10 years.

Current Shiller PE: 40.01 (as of November 2025)

Let me put that number in context:

• Historical average since 1881: 16.90
• 20-year average: 27.3
• Current level: 137% above the historical average

The Shiller PE has only been higher twice in history:

1. December 1999 (dot-com bubble): 44.19
2. 2007 (right before the financial crisis): ~32

As NPR recently reported, "The CAPE ratio today is pretty close to 40. And that's higher than it's been at any other time besides the turn of the millennium."

John Campbell, the Harvard economist who co-developed this ratio with Shiller, emphasizes: "This isn't something that's going to tell you, oh, there's going to be a crash tomorrow. But if you look over 10 years, high values of this ratio are associated with low subsequent 10-year returns."

What This Means in Real Terms

Let's do the math. The inverse of the Shiller PE gives you the expected real return over the next 10 years.

1 / 40 = 0.025 or 2.5% annual real return

After inflation (let's assume 2.5% average), that's about 5% nominal annual return over the next decade—roughly half the historical average of 10%.

If you're 30 years old with 30+ years until retirement, does this matter? Not really.

If you're 55 and need this money in 5-10 years? It matters a lot.

Valuation Indicator #2: The Buffett Indicator

Warren Buffett once called this "probably the best single measure of where valuations stand at any given moment." It's simple: divide the total U.S. stock market capitalization by GDP.

Current Buffett Indicator: 230% (as of September 30, 2025)

That's 2.4 standard deviations above the historical average. In plain English: the stock market is worth more than twice the entire U.S. economy.

According to LongTermTrends.net, this level suggests the market is "Strongly Overvalued."

Buffett's own guideline from a 2001 Forbes interview:

• 75-90%: Reasonable valuation
• Over 120%: Overvalued
• Current 230%: Way above even optimistic fair value

The Math on Future Returns

Using the Advisor Perspectives analysis, when you de-trend the data and look at standard deviations, the current reading is 56.5% above its trendline.

Historical patterns suggest this level has been followed by mean reversion—either through:

1. Stock prices falling
2. GDP growing faster than stocks (sideways market)
3. Some combination of both

Valuation Indicator #3: Damodaran's Gold/CPI Analysis

Let's go back to Damodaran's gold analysis because he does something clever—he compares gold prices to the Consumer Price Index to see if gold is overvalued relative to inflation.

Current Gold/CPI Ratio: 17.81
Historical median (1971-2024): 3.77

That means gold is trading at 4.7 times its historical median when adjusted for inflation.

But here's where it gets interesting. Damodaran regressed the Gold/CPI ratio against equity risk premiums and found:

Gold/CPI = -1.79 + 123.56 × (Equity Risk Premium)

With an equity risk premium of 4.03% in October 2025, the model suggests:
Fair value Gold/CPI = 3.19

The market is saying gold at 17.81 is justified. The model says it should be 3.19.

Who's wrong—the market or the model?

When investors pile into gold at levels this extreme, it's usually because they're scared of something in financial markets. And right now, that "something" appears to be overvalued stocks.

So What? Three Indicators, One Message

All three indicators are flashing the same warning:

1. Shiller PE: Stocks are 137% above historical average valuation
2. Buffett Indicator: Market cap is 230% of GDP vs. reasonable 75-90%
3. Gold Surge: Investors hedging against overvalued financial assets

If you're looking at these numbers thinking "I should sell everything and go to cash," hold on. Because here's where most people screw this up.

The Buffett Paradox: $4.9 Billion Says Don't Leave the Market

On November 14, 2025, Warren Buffett's Berkshire Hathaway disclosed a brand new $4.9 billion stake in Alphabet (Google).

Let me repeat that: The same Warren Buffett whose indicator says the market is "Strongly Overvalued" just deployed nearly $5 billion into a tech stock.

The same Buffett who has been:

• Sitting on a record $381.7 billion in cash
• Selling stocks for 12 consecutive quarters
• Trimming his Apple position by two-thirds
• Acting more cautious than any time in recent memory

...just bought Alphabet.

What This Tells Us

Buffett (or his lieutenants Todd Combs and Ted Weschler) aren't trying to time the market. They're staying invested, but being selective.

The lesson? Market timing doesn't work. Asset allocation does.

Even when valuations are stretched, completely exiting the market is a mistake. Because:

1. You can't predict when corrections happen
2. You can't predict how severe they'll be
3. You miss the recovery if you're on the sidelines

According to research cited by Invesco, missing just the 10 best days in the market over 30 years can cut your total return in half.

Your Portfolio Draw Date: The Only Number That Actually Matters

Here's where I tell you to forget everything you just read.

Not really—but sort of.

Because while those valuation metrics matter for predicting long-term returns, they don't tell you what you should do. That depends entirely on your Portfolio Draw Date (PDD)—the specific date when you'll actually need to start withdrawing money from your investment portfolio to cover living expenses.

I'll be publishing a detailed article explaining Portfolio Draw Date soon, but the short version: your PDD might not align with when you retire, turn 59½, or start Social Security. It's based on when your guaranteed income (pension, Social Security, annuities) stops covering your expenses.

If you have a military pension and VA disability that cover your bills? Your PDD might be decades away—or never.

If you're planning to retire early with no pension? Your PDD is whenever you stop working.

The key insight: Your PDD determines whether current market valuations should change your behavior.

Steps to De-Risk Based on Your Portfolio Draw Date

Here's how to think about adjusting your portfolio based on your PDD and current market conditions:

If Your PDD is 15+ Years Away:

Action: Stay the course.

The Shiller PE might predict lower returns over the next decade, but:

• You have time to recover from a crash
• Dollar-cost averaging works in your favor during downturns
• Trying to time the market costs you more than staying invested

If Your PDD is 5-15 Years Away:

Action: Start shifting gradually.

You don't need to panic, but you should be building stability. Not because a crash is imminent, but because you can't afford to take a 40% hit right before you need the money.

If Your PDD is Less Than 5 Years Away:

Action: You should already be de-risked.

When your PDD is this close, valuations matter a lot. A correction that takes 5-7 years to recover from means you're selling at the bottom to fund expenses.

If You Have a Pension/Annuity That Covers Expenses:

Action: You might not have a PDD.

If your military pension + VA disability + Social Security cover 100% of your expenses, you might never need portfolio withdrawals. In that case, you can stay aggressive indefinitely because this is truly "never money."

The Buffett Lesson: Stay Invested, Stay Selective

Warren Buffett sitting on $381 billion in cash tells you he thinks the market is expensive. Warren Buffett buying $4.9 billion of Alphabet tells you he's not abandoning stocks completely.

The takeaway? Even in expensive markets, the right move isn't to exit—it's to be selective and match your allocation to your timeline.

The market can stay overvalued longer than you can stay solvent sitting in cash earning 4%.

Action Steps Based on Your PDD

If your PDD is 10+ years away:

• Keep dollar-cost averaging
• Ignore the noise about valuations
• Focus on consistent contributions

If your PDD is 5-10 years away:

• Start annual rebalancing
• Build a bond ladder for the first 5 years of expenses
• Gradual shifts, not panic selling

If your PDD is less than 5 years away:

• Have 2-3 years of expenses in stable assets
• Consider working with an MQFP® who understands military benefits
• Review your withdrawal strategy

If you have guaranteed income that covers expenses:

• Focus on tax planning instead of sequence of returns risk
• This changes everything about allocation
• Consider Roth conversions and strategic withdrawals

Final Thought: Your PDD Matters More Than Any Indicator

The Shiller PE could hit 50. The Buffett Indicator could go to 300%. Gold could double again.

None of it changes your PDD.

Your job isn't to predict the market. Your job is to know when you need the money and position yourself accordingly.

If you need help calculating your PDD or figuring out the right allocation for your situation, consider working with a Military Qualified Financial Planner (MQFP®) who specializes in military-specific financial planning. Schedule a consultation to discuss your unique situation. Because the most expensive mistake isn't buying at the top—it's selling at the bottom because you didn't plan properly.