SPY is overvalued with no safety margin; current price implies poor returns and high risk.

The S&P 500 index is used as a general investment benchmark. But what is its intrinsic value?

We are looking for low-risk, high-return investments, and from this perspective, we will be dealing with the S&P 500 index. However, returning to the S&P 500 index, which is close to its record highs, let's delve into its intrinsic value.

If we look at the earnings of the S&P 500, we will find that they have increased by 50% over the past few years. That's 296, let's call it dollars or points for each value in the index.

Looking at this ratio historically, we are not at the extreme levels of the dot-com bubble, but we are on the higher side of history.

This is an exceptional case when earnings were extremely low during the global financial crisis, but let's say this is the average price-to-earnings ratio over the past 100 years.

Looking at earnings growth, it has historically ranged between 6% and 7% annually through recessions and other conditions.

Over the past few years, it has been much higher, but let's not consider it a sustainable trend for the future.

Return on investment, 3.8%. However, the dividend yield is at a historic low of 1.06. So, if we go to the S&P 500 index, you can click here, and you will be taken to the intrinsic value model, which will compare our intrinsic value to the stock price.

The earnings per share of the S&P 500 index are 296. The dividend payout ratio is 30. Now we need to estimate future growth rates. We said we would use a 10% discount rate, and a price-to-earnings ratio that should be the long-term average of the S&P 500.

In this case, with future growth of 7%, and a dividend payout ratio of 14%, which is money coming directly into your account, the intrinsic value is 4,341, which is a long way off the current share price.

Therefore, between 3% and 4% is the expected return for the S&P 500 index under these assumptions. Let's go back to 10% because from stocks one expects 10%. If profits grow faster, thanks to AI productivity of 9%, and the price-to-earnings ratio is where it is now, after 10 years the price-to-earnings ratio will be 25.

That's it. This is what the S&P 500 index is priced at right now.

High growth rate, no recession, and nothing else. The price-to-earnings ratio at the upper end of the spectrum. And then we have the safety margin calculation. Let's say the growth rate due to the recession or, who knows, the bursting of the AI bubble, is only 5%.

We return to the historical average of 15 as the final multiplier, which can decrease further in times of crisis. The current value, according to the value investment scenario, is 3300 points, which is a 60% decrease from the current share price.

When we get here, I will say: "People, buy the S&P 500 index." Until then, the evaluations tell us the intrinsic value. We live in times of excessive optimism, and therefore they are expensive to buy now.

Here is the S&P 500 index. At 7000 points, the expected return is about 4%, and I've slightly changed the box. Returning to the S&P 500 index, there is no safety margin. 40% of it is now artificial intelligence, which is clearly in a bubble.

Maybe not, but the word "maybe" is not something you should base your financial retirement on.

From a CAPE (Cape) repeater's perspective, we are at the 99th percentile, the most expensive market in history, which implies the potential for poor returns in the future.

It's just something that worked well, negative, and everything that pushes it upwards. It is unsustainable, and everything that is unsustainable must stop. Therefore, I consider the S&P 500 index to be risky.