For a long time I have daydreamed about saving up $200k for a downpayment on a house. In my town, any decent house that isn't a big commute away from work and schools is going to be very, very expensive. Like close to a million.
So lets say I want to save up for that huge downpayment, where do savvy Mustachians put this money?
IMO it all comes down to your time-frame, and how concrete that time-frame is. If you are thinking "one-day, maybe, several years away" I'd definitely put all of your savings into a low-cost index fund. If in several years the market dips - meh - you wait for it to recover, or decide not to buy at all.
However, if you are planning on definitely making a purchase with a couple of years, then your #1 concern is protecting principle and a savings account may be your best bet.
To use history as a guide: For one year periods, the real-adjusted SP500 has finished positive about 2/3 or the time, but with a range from -38% to +53%
For 5 year periods, 80% of the time the market has finished positive (range of annualized returns: -13.5% to +23.5%)
For 10 year periods, you win 89% of the time (annualized range: -4% to 18.3%).
For 20 year periods, it has always been positive.
For any period much longer than a year the odds favor putting it in the market, but whether that's the right decision depends on if you must take it out at an exact point, or if you can wait until it's right for you.