It is perhaps the most pressing question facing U.S. stock investors: Are we in a short-term bubble—or headed for long-term trouble?

There are plenty of reasons to be nervous about the U.S. market’s short-term outlook. Profit margins are at historically high levels. Share prices have tripled since the March 2009 market low. Valuations appear expensive based on market yardsticks like dividend yield and price/earnings ratios.

Still, it doesn’t look like we are in a bubble, and today’s lofty valuations probably will be considered fairly normal down the road. That might sound like good news, but there is a downside: It likely means we’ll see lackluster long-run returns.

Popping bubbles

The technology-stock bubble of the late 1990s and the housing bubble of the early 2000s saw prices rise to absurd levels over the course of three or four years. But that doesn’t describe what has happened to the overall U.S. stock market.

Instead, U.S. shares arguably have been overpriced for much of the past 25 years. Take the so-called Shiller P/E, named after Yale University economist Robert Shiller. It compares the S&P 500’s SPX, -1.11% current level to average inflation-adjusted earnings for the past 10 years.

From 1946 to 1990, the Shiller P/E averaged less than 15. Since then, it has averaged almost 26.

To be sure, there has been good news for stocks over the past 25 years, including rapid technological innovation, decelerating inflation and falling long-term interest rates.

But there also has been plenty of bad news. Indeed, the market has remained expensive despite much hand-wringing over valuations, worries about an aging population, two brutal bear markets, tepid economic growth for the past 15 years and all kinds of global conflict. That suggests that valuations may have shifted into a permanently higher range.

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Dwindling opportunities

Why have valuations shifted higher? We appear to have too much money chasing too few investment opportunities.

This is partly driven by the loose monetary policy adopted by the world’s central banks, says William Bernstein, an investment adviser and author of “The Birth of Plenty.” But, he adds, it also is a reflection of a maturing economy.

In a subsistence society, there is little excess capital, so anybody with extra wealth can charge exorbitant interest rates to borrowers. But as societies grow richer, there is more capital available to be lent, so rates of return decline. “The richer the world gets, the lower investment returns become,” Bernstein argues.

Perhaps today’s best indicator that capital is plentiful, and investment opportunities are scarce, is the sharp increase in stock buybacks. Toronto-based pension consultant Keith Ambachtsheer calculates that over the past four years, the S&P 500 companies have had a payout yield of 4.8%, with 2.1% coming from dividends and 2.7% from net share repurchases.

“Corporations are now returning most of their earnings to shareholders in the form of dividends and share buybacks, and retaining little for capital reinvestment,” Ambachtsheer writes in his March newsletter. This, he says, is a sign of “mature capitalism.”

Shrinking returns

All this is a mixed blessing. The good news: While severe bear markets may occasionally drive down stocks to modest valuation levels, we probably won’t regularly see the S&P 500 trade at a Shiller P/E of 15.

The bad news: Stock returns in the years ahead are likely to be modest. “Because corporations are using their money to buy back stock, future earnings growth and future dividend growth are going to be slower,” Bernstein says.

On top of that, returns likely will be lower because we are starting from higher valuation levels. The Shiller P/E has climbed from 15 at year-end 1945 to 27 today. That is a onetime gain that we can’t enjoy again—unless we suffer a massive bear market first.

What are the implications for investors? I would focus on three strategies.

* First, look to keep more of whatever U.S. stocks deliver by holding down investment costs and minimizing your portfolio’s tax bill.

* Second, compensate for low returns by upping your saving rate. According to investment researcher Morningstar, large-company U.S. stocks outpaced inflation by seven percentage points a year over the past nine decades.

In the years ahead, if the annual inflation-beating margin for U.S. stocks is just four percentage points, rather than seven, those in their 20s will likely need to save more than twice as much every year to have the same sum at retirement.

* Third, consider allocating 30% or 40% of your stock portfolio to foreign stocks. Valuations in both developed foreign markets and emerging markets appear more reasonable than in the U.S., which suggests you may enjoy better returns. Check out broadly diversified exchange-traded index funds such as iShares Core MSCI Total International Stock IXUS, -0.80% and Vanguard FTSE All-World ex-US VEU, -0.74% .

Jonathan Clements is the author of the “Jonathan Clements Money Guide 2015.”