Go for a multi-asset approach, say experts
The year has been largely forgettable for local share investors, with the Singapore stock market still down by 0.55 per cent on its close for 2012.
Gold investors are also languishing in negative territory with the yellow metal set to notch its first annual decline in 13 years.
But it hasn't been all bad news, and Wall Street has risen strongly despite the recent announcement of a slowdown in United States money printing, a reduction known as "tapering".
With significant losers and gainers across the asset classes, it is evident that choosing where to park your money is of utmost importance heading into 2014.
Market experts tell The Sunday Times about their picks for next year.
Stocks - bright year expected
Analysts and fund managers are positive over the outlook for global stocks, saying that valuations are attractive compared with that of bonds.
DMG & Partners Research released an upbeat report on the Singapore stock market last week, saying that "conditions are ripe for the market to outperform its regional peers".
DMG's target for the Straits Times Index (STI) is 3,480 points, about 10 per cent higher than Friday's 3,149.76 points.
DMG compiled a list of 14 of its top stock picks, such as lender DBS Group Holdings and traditional chinese medicine group Eu Yan Sang International.
OCBC Investment Research, UOB Kay Hian Research and UBS have also come up with their top stock picks for next year.
"While the Singapore stock market is likely to end 2013 flat, the economic outlook for 2014 could mean Asian and Singapore equities are worth a re-look," said OCBC.
If you want to look further afield, the United States is a popular pick among market professionals.
"The US is our team's favourite market for the moment," said Schroders economist Azad Zangana.
"We like developed markets but we like the US the most," added Mr Zangana, who was speaking last month at his firm's international media conference in London.
He said that US companies are in a good position to raise investments.
Bulls welcomed the Fed's tapering decision this month, saying that the windback in stimulus is a sign the central bank is confident about the US economy.
Ms Lee Spelman, head of the US equity client portfolio management team at JP Morgan Asset Management, expects a 10 per cent return from the US market next year - about 2 per cent from dividends and 8 per cent from price rises.
She was one of those who welcomed the Fed's tapering, as a sign of confidence about the US economy.
One of the funds in the JP Morgan stable is the US Value Fund. The fund's factsheet showed that at the end of October, its top five holdings were - in this order - lender Wells Fargo & Company, energy company Exxon Mobil Corp, drugmaker Pfizer, oil company Chevron Corp, and consumer products maker Procter & Gamble Co.
There could also be pickings in emerging market shares including Asia.
"We believe many emerging markets, in addition to China, possess considerable economic growth potential," said Dr Mark Mobius, a fund manager at Franklin Templeton Investments.
Longer-term developments could drive solid growth potential in emerging economies for years into the future, said Dr Mobius, who is executive chairman of the Templeton Emerging Markets Group.
Mr Allan Conway, head of emerging market equities at Schroders, said that emerging markets have "under-performed for three years". "Emerging markets today, because of all the negativity that investors generally have, are looking astoundingly good value," he added.
Mr Conway helps run the Schroder International Selection Fund (ISF) - Emerging Markets.
The fund factsheet showed that at Nov 29 the top holding was South Korea's Samsung Electronics followed by Taiwan Semiconductor Manufacturing which is listed in Taipei.
Schroders fund manager Richard Sennitt said he has been taking money out of Asian real estate investment trusts (Reits) this year with the first signs of the end of US money-printing.
He has moved cash into Asia-Pacific commercial banks which were "much more attractive" in terms of valuations and will also benefit from rising interest rates.
Mr Sennitt manages the Schroders Asian Income Fund which is based in London and not distributed in Singapore.
At Oct 31, the fund's top holding was Taiwan Semiconductor Manufacturing. This was followed by lender HSBC Holdings which is listed on several bourses including Hong Kong.
Bonds - muted outlook
Market professionals are cautious over bonds in contrast to their enthusiasm for equities.
"Bonds are incredibly expensive," said Mr Zangana from Schroders. "Bonds, in my opinion, are the biggest bubble waiting to burst."
He noted however, that central banks can keep bonds going for "a very long time" because they can keep interest rates low and continue printing money.
DBS Bank is "neutral" on developed market corporate bonds over the next year.
"Bonds remain expensive relative to equities," said a note by the DBS chief investment officer's office.
But it added that "benign inflation and accommodative monetary policies" will support the search for yield among corporate bonds.
"Default risks should remain low as economic recovery translates into (earnings) growth," said DBS.
Gold - concerns over further falls
Gold has been a losing investment this year. One ounce was worth US$1,214 on Friday, down 27 per cent on the year.
Some bears say that the metal may drop further and head towards the US$1,000-an-ounce level.
"We are cautious on the outlook for gold as Fed tapering reduces the risk of inflation and is likely to boost the US dollar further, both of which are negative for gold," said Mr Vasu Menon, vice-president for wealth management Singapore at OCBC Bank.
"Gold prices have appreciated significantly over the last 10 years and now that equities are back in vogue, investors are also moving funds out of safer havens like gold," said Mr Menon.
But Ms Paula Bujia, manager of the Schroder Gold and Precious Metals Fund, tips further upside for the metal.
"We don't think the bull market has ended," she said at her firm's conference.
She noted that there have been years in history where gold prices declined as much as 40 per cent but the bull market continued after that.
"I'm sure there were a lot of doubters those times, as there are today," she said.
"People are quite negative on gold and it can go higher," said Ms Bujia, although she did not provide a price target on the metal.
Importance of allocation
With all these asset classes on offer, you may want to diversify your holdings.
Mr Aymeric Forest, fund manager for Multi-Asset Investments at Schroders, thinks well of the prospects of global stocks. Even then, "you won't want to be 100 per cent invested in equities", he said.
"You'll want to be invested in a diversified, probably a multi-asset approach, that is flexible, that will be able to capture growth opportunities," he added at the conference.
He cited an example of a portfolio with a "moderate risk profile" with a focus on "income" from stock dividends and bond coupons.
This portfolio would have about 40 per cent in global stocks, 24 per cent in high-yield bonds, 15 per cent in investment-grade bonds, 12 per cent in emerging-market debt, with the rest being held in cash.
The stock component will include US, European, British and emerging market shares, including Asian stocks.
The focus on income assets such as bonds, plus the diversification, will lower the volatility of the portfolio, he said.
OCBC's Mr Menon said "there isn't a single solution that can be applied uniformly among investors".
"For those with the risk appetite, a deeper pocket and a medium term investment horizon, equities - especially developed market equities - are a good way to invest most of their funds," he said.
He is cautious on bonds but said that investors should hold some of them for prudence. Those with a low risk appetite may wish to invest in shorter dated bonds.
Being cautious on gold, he suggests that investors either avoid gold or invest a very small portion of about 1 to 3 per cent of their funds, as "an insurance against unexpected and negative events that may roil financial markets".
How to invest
All this talk of diversification and overseas shares sounds well and good, but where does this leave the regular retail investor in Singapore, with limited access to many asset classes?
Parking your money with a unit trust is an option. You'll need to pay certain charges like management fees, but professional fund managers will manage your money for you.
You can buy funds invested in asset classes all over the world - such as emerging market bonds or US stocks - right from your bank or online portals like Fundsupermart.
You will get some level of diversification as funds will hold more than one stock or bond. There are even multi-asset unit trusts - at one go, you'll gain exposure to bonds, stocks, commodities and the like.
Another option, incurring lower management fees, is through exchange-traded funds (ETFs). These are funds that track stock or bond indexes worldwide or even commodities such as gold.
Many ETFs trade over the Singapore Exchange (SGX).
Note that many ETFs and units trusts are classified as "specified investment products" by the Monetary Authority of Singapore.
To invest in them you must have relevant education, work or trading experience. Otherwise you will have to demonstrate product knowledge - such as passing a test - before being allowed to trade.
The third method is to invest directly in shares and bonds. Stocks and bonds listed here and overseas are most probably not "specified investment products" so you won't need to pass tests to buy them.
Note the risks and costs involved, such as the lack of diversification when you buy individual shares.
Options for gold investments include the old-fashioned way of buying the stuff and finding a way to keep it.
To save yourself the hassle, you may open a gold savings account with a bank such as United Overseas Bank, or buy the gold ETF on the SGX, which tracks the price of the commodity.