A recent (long) post on Barry Ritholtz’ blog The Big Picture has a great chart (look for the 4th image in the post) that shows how uninvested cash in the US has grown to nearly the same value as the entire stock market, from an average around 40-50%. If a substantial portion of this returns to the market eventually it could raise prices well above their current levels.

There isn’t a particular reason that the peak of the S&P 500 is a special value and will be reached again in the near future (some estimates of long-term trends put the “right” value around 1100 rather than 1500). If there truly are many people waiting to invest again that does increase the potential future returns for anyone who gets in before them. There have been many stories about fund outflows over the last year so it’s not hard to believe that people have withdrawn temporarily to cash and bonds.

An important counterpoint is that with stock market declines of around 50-60% from their peak and this chart showing cash as a percentage of total stock market value, the actual amount of cash outside stock investments may not have risen that much. The fact that a good portion of this cash wasn’t invested in stocks before the crash means that it may not go into stocks once investors regain confidence.

This isn’t enough to change my plan but contemplating the fact that a lot of people may yet regain their enthusiasm for stocks reinforces the point that even if there are future declines this isn’t a bad time to invest.