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RobinZ comments on Open Thread: April 2010, Part 2 - Less Wrong
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Beware trying to time the market. Make sure you're taking this action, not because you feel that the time is right to switch, but because you've carefully analyzed your risk/reward preferences.
That said, yes, there are 'index fund' bond investment vehicles, outside of the ETFs mentioned by mattnewport. They generally track the time frame (short, medium, long term) and type of bond (corporate, state, federal). Here are some examples from Vanguard: VBISX (Short Term Index), VBIIX (Intermediate Term Index), VBLTX (Long Term Index), and VBMFX (Total Bond Market Index).
What you're talking about is Asset Allocation, and it's the number one predictor of your long term investment results. This generally involves determining your own risk profile and picking bonds vs. stocks appropriately. A rule of thumb is to pick 100 - (your age) as a percentage of stocks, since the younger you are, the more growth you'll need. If you have less tolerance for risk, then you could go lower.
I'm currently invested 20% bonds and 80% stocks, but the bonds I have access to are the safest in the world (Federal employee G Fund, the same thing that Social Security invests in). Further breaking down AA, general categories include foreign vs. domestic, index vs. actively managed, taxable vs. non-taxed.
Example Asset Allocation:
20% bonds:
80% equities:
Tax efficient fund placement:
List of securities from least to most tax efficient:
Disclaimers: This advice is US-centric. I invest in Vanguard because they have very low Expense Ratios (ER), low or no purchase costs (loads), and have a large number of high quality index funds. Other investment firms such as Fidelity are also very good, and often have comparable funds.
Back up: you can make maximum Traditional & Roth IRA contributions in the same year? (I live in the U.S., and have only been putting funds into my traditional IRA.)
No, you cannot max both a Traditional and a Roth; it's either/or. Which one you choose depends on several factors, including length of investment and the income you predict you'll have during disbursement. Traditional is better if you expect low income in retirement, or a shorter time frame until retirement; Roth is better if you expect higher income or a longer time frame.
How do you pick when to switch, then? I assume tax-efficiency, but how tax-efficient should income be before you put it into Roth rather than Traditional? And how do you measure tax-efficiency of income?
I apologize if this is overly off-topic, of course.
It's been a while since I did primary research on the topic; I decided on a Roth for my personal circumstances and dumped most of the other knowledge afterward, so I'll be deferring to references: here are a couple articles about the topic of choosing between them, one which links to a calculator.
You measure tax efficiency by what percentage of the money you get to keep after it's been taxed in the context of your other income and investments. Putting tax-inefficient funds in tax-efficient formats like an IRA lets you keep a (hopefully much) larger percentage.
And I don't see how it's off topic in an Open Thread.