Nobel Prize-winning economist Robert Shiller is encouraging investors to go abroad as U.S. stocks hit fresh record highs.
The Yale economics professor argues that Europe offers the most upside for U.S. investors right now, and it could protect them from growing risks at home.
"Europe should be a big thing in one's portfolio. Their price-to-earnings ratios are much lower," Shiller said Wednesday on CNBC's "Trading Nation." "It looks bad because they've been through troubles recently. But people sometimes exaggerate those troubles."
Those challenges include Brexit, the French election and a rise in terrorist attacks — as well the debt crisis affecting countries such as Greece, Spain and Ireland.
"We have a lot of bad narratives about Europe. But you have to think back at the long history. Europe has done quite well," added Shiller, who says it's hard to predict if U.S. stocks will continue to rally in the coming days or see a deep correction.
"Most Americans are not well-diversified globally. When we're talking about the 'Trump effect,' that is primarily a U.S. effect. You can solve that problem by diversifying around the world," said Shiller.
He's particularly concerned that the "Trump story" is overshadowing other news that could affect the stock market's path. He also cites the emerging threat of a war with North Korea as a risk.
"We're living in very volatile times. We don't know what to expect," he said.