According to this chart *, the US dollar is down 34.91% (not counting interest) versus the euro since 12/31/99, and the S&P 500 index is down 11.31% (not counting dividends, or down only 0.55%, including dividends, for VFINX, as you stated).

From this, we can postulate that nearly all of one's portfolio returns can be attributed to the performance of the underlying currency, with the remainder being interest and dividends. If you think about this for a while, this is really mind boggling. There are a lot of passive and active strategies out there, but the bottom line is, none have worked very well since 12/31/99 if you include the performance of the currency. And, none have worked well, as you pointed out, compared to money market YTD. Money market has done well recently, although it has still lost to US dollar devaluation (inflation). Investing in stocks (growth, value, high dividend yield, etc., doesn't matter) this year to combat inflation, as was so widely suggested, has not worked.

We can further postulate from this chart that we have been in a continous recession since 2002, when the US dollar/S&P 500 index combo started to go negative. In fact, if you count the 'tech bubble bursting' period of 2000-2002, when the dollar was still strong but the market tanked, we have been in a continuous recession since 2000. It's just that the obvious drop in the market in 2000-2002 was replaced by a less obvious drop in the currency for 2002-present.

As far as money market versus bonds are concerned, if interest rates rise to combat inflation, then bond values will drop, thus making money market a better choice, not counting US dollar devaluation. Plus, we may start to see some bonds defaulting as the 'housing bubble bursting' and the 'credit crisis' continue, thus potentially further supporting the idea of money market. Again, if the US dollar continues to slide, even money market will not be a safe haven.

I'd like to point out that this thread questions the conventional wisdom that: (1) stock markets will always go up in the long run, (2) currency exchange rates tend to even out so are a wash in the long run, (3) money market/cash has no place in a portfolio except as a 'parking place' awaiting future opportunities, and (4) bonds will always outperform money market/cash in the long run. I challenge these assumptions, based on the new emerging long-term trends.

* Note that if the chart does not work, enter '12/31/1999' under 'FROM:' and then hit 'Enter.'

Dan