“If you think about economic or financial theory, it really doesn’t say anything that we’re being compensated for growth — we’re being compensated for the risk we take,” the Vanguard CIO said, although he added there would certainly be some downside in stocks if we go into a recession or fall off the fiscal cliff.

Still, he thinks the S&P 500 falling to 666 in 2009 established a bottom in the market.

Sauter noted investors have suffered through over a decade of “basically zero” returns after P/E ratios surged above 30 at the end of 1999 in the tech bubble.

“There was just going to be no happy ending to that,” he told CNBC. “We’re in better shape now. Valuations are a little less than long-term historical averages.”

Vanguard’s philosophy is that investors are best served by a strategic allocation and sticking with it to avoid buying high and selling low, Sauter explained.

He said it’s “very difficult to step up” psychologically and buy stocks when it’s the right time, and that few investors are able to do it.