Light breaks after a tempestuous year

What an odd year it was but wait until you see 2012.

The best place for your money was in either a gold bar or a government bond, normally opposites of each other.

Gold is speculative, pays nothing and is driven by suspicion of governments.

Bonds are gilt-edged investments, pay interest and are government-guaranteed.

Yet if you'd held bullion all year you'd be sitting on a gain of about 15 per cent. Government bonds have so far returned 13 per cent, the head of investment strategy and consulting at UBS Wealth Management, George Boubouras, says.

Compare this with the sharemarket, where there was no return at all. Even after dividends, you've lost on average about 7 per cent as we speak.

No, the year's winners were anything reliably paying an income such as fixed interest and stocks, such as Telstra, with a high fully franked dividend. If your super is in a conservative or balanced fund, there's even a chance it made some money this year because half the portfolio will be in fixed interest and cash. UBS's income fund, for example, returned 9 per cent.

For all that, it may be time to pile back into shares, at least large blue-chip, dividend-paying ones.

The fact is, shares are cheap and bonds have become dear. Share prices have been marked down too far due to the European debt crisis, analysts say. And falling interest rates should be good for stocks.

"Shares are now very cheap, particularly against bonds monetary policy is easing further and everyone is bearish," the head of investment strategy and chief economist at AMP Capital Investors, Shane Oliver, says.

He tips the sharemarket will rise 18 per cent to 4950 next year. Brokers are even more bullish, going as far as 5500.

The safest prospects are banks, telcos, utilities and infrastructure because they pay a good income.

The banks are especially attractive for their dividend yield as interest rates drop.

They've been marked down because they borrow heavily on international markets where costs have been pushed up by the European debt crisis but analysts say their earnings are safe.

Don't sit on the sidelines but be conservative, the general manager of investments at Australian Unity, David Bryant, says.

"Have enough security in your portfolio so swings don't hurt so much," he says. "Cash is never the answer but hold a bit more than normal."

Volatile as the sharemarket was disappointing, it did manage some spectacular successes along with some shockers. As usual, the best performers were the tiddlers. Two biotechs - Antisense Therapeutics and Genetic Technologies - soared 357 per cent and 279 per cent, respectively, but even then aren't worth 20? apiece.

Strange, isn't it, that in the middle of a commodity-price boom, resources stocks were among the worst performers?

The share price of BHP Billiton, the world's biggest diversified miner, fell about 20 per cent.

There were two other winning strategies this year, one of which may surprise you.

Leaving your money in a term deposit would have returned up to 6 per cent or so but that wasn't the surprise.

No, listed property trusts, or more formally real estate investment trusts (REITs), also proved a safe investment after several years lagging the field.

They yield another 1 per cent or so more than a term deposit and in some cases threw in a small price gain as well.

One asset many fund managers were pushing all year was a singular disaster: emerging markets funds. For the year up to the end of November their returns fell 17.2 per cent, Morningstar says.

Anyway, if government bonds are the bees knees and interest rates are falling, and the flipside is their prices going up, is that where you should be investing?

Not on your nelly. After all, the year before they were the worst investment so, if nothing else, had a lot of catching up to do.

"The fact that fixed interest gave a great return this year is not a reason to pile in now," an investment strategist at Russell Investment Group, Andrew Pease, says. "Bond yields in Australia are at a multi-decade low. We've squeezed as much juice out of that lemon as we can." As yields fall, prices rise.

"Fixed interest is looking expensive and risky assets like shares are looking cheap," Pease says.

Nor is sticking your money in the banks likely to be a winner next year. The market expects official interest rates to drop 1 per cent during 2012. Some of that will be passed on in lower term deposit rates. What's more, tax and inflation will eat your earnings.

Even in an untaxed pension-paying super fund a 5.75 per cent term deposit is returning at most 3 per cent a year in real terms.

A bank deposit won't make up for the losses by DIY super funds since the GFC, either.

Its only use is having something up your sleeve so you're never forced to sell in a falling market.

But the lower rates go, the better for REITs. Since they're earning income from rents, their yields won't drop, which makes them look even more attractive.

For the first time since the GFC hit, REITs are poised to deliver decent capital gains next year.

Come to that, falling interest rates are good for the rest of the sharemarket, too, especially if they pull the dollar down.

They're good for gold as well. The lower interest rates are, the less you're losing in income by holding bullion.

But gold is purely speculative and history shows it's rare for one year's winner to be the next.

Incidentally, gold shares struggled against bullion based exchange-traded funds (ETFs) such as GOLD, PMGOLD and QAU, which don't come with the baggage of management, mine life or market sentiment.

Not that they have the same leverage. For every share you own, you have the benefit of a lot more production than if you'd bought a gold bar or an ETF.

"At these prices, the gold producers are minting money," a leading analyst at Eagle Research Advisory, Keith Goode, says.

He predicts prices of gold stocks such as Alacer, Focus and Silver Lake Resources could rise by up to 50 per cent when half-yearly results are published in February and the market re-rates them.

But Boubouras warns gold is near the end of its run. "The best 10 years are behind us," he says.

Almost as lacklustre as the sharemarket have been housing prices.

These are gently deflating - though it depends on the area since the inner city is holding up well.

Lower interest rates help but property is still relatively unaffordable, which is made worse by the government predicting higher levels of unemployment.

Oliver expects house prices to fall about 5 per cent in the first half of 2012 but then pick up.

He also tips a balanced super fund will earn 8.5 per cent next year, so you may as well salary sacrifice and save tax.

For voluntary contributions, remember you have until June 30 to get the more generous dollar-for-dollar government co-contribution.

It'll pay up to $1000 on a contribution by somebody working at least part-time earning $31,920 a year, phasing down until it disappears on incomes of $61,920.

Next year the maximum will be $500 on a $1000 contribution for incomes up to $31,920 a year, phasing down for incomes up to $46,920.