The later one seems to offer the best compromise since all the data will still be accessible quite easily.
But compressing all the files is not so nice work if you have to do in manually.

Applications like Squeeze might be worth a look, if your computer has enough free resources in terms of memory and CPU cycles.
It will compress the folders you tell it without further interaction needed.

The downside of this is that the on-the-fly compression will impact on your computer’s overall performance a bit.
But if you can cope with that, its maybe worth thinking about.

Image: Flickr

Sascha