The extreme ends of that range suggests we could see:Both these outcomes are extremely unlikely, but not impossible, and which one is better depends on your point of view.Retirees about to buy an annuity will want the bubble valuation to maximise their selling price, while new investors just starting out will want the depression valuation to minimise their purchase price.Personally, I don't like extremes so I'll be hoping for something in the middle, and 12,000 in 2030 has a nice ring to it.Dividend Investing, Value, large-cap, Newsletter Provider very expensive) and green showing where the FTSE 100 would have been if CAPE was 8 (i.e. Here it is again:The chart is an attempt to show a range of reasonable values that CAPE could have had at any point in the past. The current value of 15.6 is obviously below that, so the FTSE 100 is cheap, right? In other words, a range from 8 to 32.The chart shows the range of FTSE 100 values that CAPE range would have produced, with red showing where the FTSE 100 would be if CAPE was 32 (i.e. Over the last 30 or so years, the FTSE 100's CAPE ratio has averaged 18.4. The trailing twelve month P/E is currently 14.39. We can fix that by looking at dividend yield since 2003 (the trough of the dot-com crash), where the average turns out to be 3.6%.A dividend yield of 4.4% for the FTSE 100 is below the average yield of 3.6%, so on a dividend yield basis the FTSE 100 also looks somewhat cheap.In summary then, both CAPE and dividend yield suggests the FTSE 100 at 7,500 is probably below fair value, although not by a huge amount.I should probably explain the rainbow chart from the top of this article.

*Close price adjusted for splits. And again, that's exactly what happened.Today the FTSE 100 sits in the middle of that reasonable range, so the odds are about 50/50 that CAPE will increase or decrease in the years ahead (or it might even stay close to fair value).So that's where we are today, but what about the future?Stock market forecasts are of course a bad idea because they almost never come true.Even so, I still think a sensible forecast can tell us something about the outcome we should expect, even if the actual outcome is unknowable.For this forecast I'll make three reasonable assumptions:So under a reasonable set of assumptions, I think we can reasonably expect to see the FTSE 100 reach about 12,000 by the end of this decade.And the annualised return from this scenario, including capital gains and dividend income, would be 9.4% per year.That's slightly above the long-term average, partly because of a small tailwind from CAPE's upward mean reversion to 16, but mostly because of the index's above average dividend yield.One problem with this forecast is that it gives very precise figures, whereas in reality we have no way of knowing what level the FTSE 100 will be at next week, let alone in 2030.In reality, CAPE could be anywhere within a reasonable range of values from about 8 to 32.

For example, in mid-2017 the FTSE 100’s price was 7,400 and its PE ratio was 25. Updating the FTSE 100’s CAPE ratio for 2020.

The current value of 15.6 is obviously below that, so the FTSE 100 is cheap, right?Looking at CAPE data for multiple indices globally over many decades, I think a ratio of 16 is, for now, a better estimate of the true long-term average.A dividend yield of 4.4% for the FTSE 100 is below the average yield of 3.6%, so on a dividend yield basis the FTSE 100 also looks somewhat cheap.In this article, I calculate the cyclically adjusted PE ratio To get around that, CAPE uses ten-year average inflation-adjusted earnings, which strips out most of the volatility that comes with annual earnings. And if it's close to average then it's close to fair value. Robert Shiller’s CAPE ratio is one of the best long-term valuation ratios we have. It’s much better than the standard PE ratio because the standard PE ratio compares price to earnings over a single year, and earnings over a …


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