How should we invest in the current environment?
Thank you for asking my opinion. I can't see the future any better than anyone else, but I can tell you what I am doing.
I firmly believe that interest rates have to go up at some point. In such an environment, bond funds are not attractive. (Bond values drop when prevailing interest rates go up.) Therefore, I'm buying actual bonds so that I can hold them to maturity and get back my principal.
Because I also believe that the government has few options how to deal with its heavy debt, I believe it will use the traditional approach of letting inflation go above normal values. That lets the feds pay off debts with less valuable dollars. Therefore, I'm buying I bonds for my grandchildren and TIPS for ourselves, the latter in an IRA, preferably a Roth because I believe that tax rates will have to go up as well as inflation and interest rates. You can find out more about TIPS and how to buy them from www.treasurydirect.gov.
I still think a person has to hold stocks in accordance with some kind of an allocation rule. I like the rule of 100 - Your Age as a minimum percent for stocks. I believe that the maximum should not be higher than 10% more than the minimum. I like stock index funds better than stock picking.
Anyway, those are my views and the way I am trying to be prepared for what I perceive as the future investment environment.