[ QUOTE ]
why a person in the situation described would be better served by keeping their money in Cash, rather than investing in an index fund?
[/ QUOTE ]
Remember that we're talking about a one-year holding period.
[I don't have the inclination to research the sources for all these figures right now, but I will if someone honestly doubts the ballpark I put them in and really really needs sources.]
Cash=guaranteed 4% return with a 0% variance
S&P 500=???? return (avg. return ~11%, variance y% [I don't know exactly, but I'd guess y=~20])
Who knows what the return of the index will be? I sure don't, but here's some stats you may be interested in:
* The overall P/E of the S&P today seems fairly reasonable (17-18 is what I've been hearing), but the one that's usually bandied about includes the words "projected operating earnings," the first two of which significantly deflate the ratio. Also, corporate profits as a %age of GDP are at a multi-decade high (don't have the stats in front of me, but it's now in the 7-8% range, though usually in the 4-5% range).
* The P/S of the market (defined as aggregate-stock-market-valuation/GDP) is currently in the
140% range. The long-term average is less than half that.
* Around x% of the years since 1927 (I don't know what x is, but I'm guessing somewhere aroun 25-30), the S&P 500 has returned less than 4%.
Your turn.