Stocks are expensive on a valuation basis, but that doesn't mean you shouldn't hold them, says Nobel laureate economist Robert Shiller of Yale University.

He developed a price-earnings ratio — cyclically-adjusted price-earnings (CAPE) — that uses average earnings over 10 years, instead of the standard one.

The CAPE ratio now stands at 25.2, compared to an average of 16.5 since 1881. "The CAPE index is rather high," Shiller told Yahoo.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

But he noted that it was also high he when he and a colleague presented it to the Federal Reserve Board in 1996. Yet the ratio kept rising for almost three years afterward, Shiller said.

"Even though it's high, I still think stocks ought to be part of someone's portfolio," he said.

"We're just not living in the best of times. Momentum is weakening in housing, stocks look overpriced, bonds are paying poorly. There's risk there too. There's no easy way to win in this market, so I'm thinking you have diversify and probably keep something in stocks."

The S&P 500 index stood at 1,868.27 around midday Monday, not far from its record high of 1,897.28, set April 4.

Many investors remain bullish on stocks. "All the fundamentals still line up that stock prices can go higher," John Fox, director of research at Fenimore Asset Management, told Bloomberg.

"Interest rates are still low, the economy’s getting better. All of that is still a good environment for equities."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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