Quoted:
The total stock market will give you a better return over the long run. A reputable mutual fund will also give you enough diversity that you won't lose big if one of your fund holdings turn out to be an "Enron".
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No, no, no, no, no.
You are thinking about the old days when that was true. Things are different now, and even after the months of carnage in the bear market, stocks are STILL wildly overpriced. There is a long way to go down, and potential upside is very slight.
The main enemy of fixed income investments like bonds is inflation, and we're not seeing that now. If anything we're seeing deflation.
However, I don't believe interest rates will be lowered. If you buy bonds and interest rates rise, the value of your bonds decrease (LT is the real expert here). This is most likely a bottom of interest rates. The dollar has been sagging, making American investments less appealling to foreign investors.
My conservative advice is this: Stash your savings in the highest interest-bearing money market funds you can find. Highest ones I've seen are about 3% or so. The rate they return should rise with prevailing interest rates.
Wait until stock valuations become sane. This should be about the point where everyone who regularly contributed to mutual funds finally throws up their hands and vows never to invest in the stock market ever again. This will be the point where there is widespread public fear and contempt for the stock market. When there are newsmagazine covers about how awful and poverty-inducing the stock market is.
At this point (and it'll come a few years down the road) dump all your money into the stock market, and use The_Macallan's strategy of buying S&P 500 index shares which gives you a piece of the broad overall stock market, and buying them despite market fluctuations.
Buying now regularly now will get you eaten alive.