What to do with a little money?

[Sniper]

[ QUOTE ]
OK, here's a real suggestion: put your money in an FDIC-insured instrument (HSBC, ING, and Emigrant Direct seem to be good choices with high yields), read five or ten books about investing and/or starting a business, sign up for some business & finance courses at your school. Give yourself at least a year of diligent study before you allow yourself to try for more than an FDIC-insured return on your investment.

[/ QUOTE ]

Buf,

In all seriousness, do you think thats the best thing for a college age student with a decent sized bankroll? (who has at least some concept of variance from his poker play)

[buffett]

yeah, that was my actual real suggestion.

[DWarrior]

That was kind of my idea, I was looking for something safe to put my money in while I figure out what to do with it.

I got a few books on investing that I've slowly been getting through, but I want to dedicate the next semester to school. I'll look into the suggestions you gave this weekend and decide what to do early next week. The one thing I won't start doing is trying to trade with 15k.

Thanks for the suggestions, I'm still open to new ideas.

[Sniper]

[ QUOTE ]
yeah, that was my actual real suggestion.

[/ QUOTE ]

Ok, I'll bite... for the purpose of discussion...

Convince me why a person in the situation described would be better served by keeping their money in Cash, rather than investing in an index fund?

[buffett]

[ 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.

[DWarrior]

[ QUOTE ]
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])

[/ QUOTE ]

I don't know if s&p has a variance of 20%, prolly 10%

[buffett]

I guess I was thinking of standard deviation.

[Maulik]

[ QUOTE ]

Cash=guaranteed 4% return with a 0% variance

[/ QUOTE ]

you should consider inflation variance alternatively, consider 4% not the true return.