S&P 500 Price Index / Historical Trailing 12-Month Price/Earnings Ratio

Chart of the Week for Aug 08, 2008 - Aug 14, 2008

The price to earnings ratio ("P/E") is a gauge of how much investors are willing to pay for future earnings. For example if a stock has a P/E ratio of 15, the market is valuing the company at $15 for each $1 of company earnings. P/E ratios usually change over time. Typically, P/E ratios expand when the market rallies and contract when the market declines.

It is important for investors to understand how to evaluate a P/E ratio. First, P/E ratios should only be compared to similar companies or indexes. P/E ratios vary between industries, countries, company sizes, and other factors. Second, P/E ratios can be calculated in different ways. For example, the "E" (earnings) can be historical earnings or can be forecasted earnings. Different earnings calculations may result in dramatically different P/E values.

The chart above details the change in the S&P 500 Index Historical Trailing 12-Month P/E ratio and the price of the S&P 500 Index. After the rollercoaster ride from 2001 to 2003, the P/E ratio generally trended downward until mid-late 2007. The recent increase reflects a willingness of investors to pay more for future earnings. Whether this means the market is over- or under-valued is the question facing investors.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Please consult both the current applicable prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investing in mutual funds and other investment vehicles involves risk, including possible loss of the amount invested. Investors should consider the Fund's investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and other information about the investment company. Please read the prospectus carefully before investing. All Vantagepoint Funds invested through 401 or 457 plans are held through VantageTrust. Vantagepoint Funds are distributed by ICMA-RC Services LLC, a wholly owned broker-dealer subsidiary of ICMA-RC and member FINRA/SIPC. For a current prospectus, contact ICMA-RC Services, LLC.

The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.