What will happen to stocks in 2014?

The 2013 financial year was one of ups and downs - but mainly ups - for the Australian stock market and therefore most super funds, closing up more than 17%.

Will next year demonstrate similar results? 

Well, stock markets are unpredictable beasts, so, unlike many commentators, I'm not going to pretend that I have any better idea than the next bloke. 

But if we work on the (flawed) assumption that fundamentals actually determine valuations, you'd have to say that prices aren't particularly attractive right now. 

The major banks have PE ratios is the low-to-mid teens with Commonwealth Bank hovering around 15. 

Some (Wesfarmers, Telstra, QBE) are priced rather more optimistically in the 15-20 range, while others (Rio Tinto) have receded.

With interest rates at record lows and yield-seeking investors pumping up prices, there may well be some upside potential.

Much will hang on the ability or otherwise of the Aussie economy to handle the unwinding of the mining construction boom without unemployment spiking and economic growth receding.

As ever in the stock markets, the trend is your friend and momentum is everything.

Remember that the XJO feel to around 3,500 as the global financial crisis crucified market confidence, yet we didn't actually experience a recession in this country. 

So, if things don't go as planned there is also plenty of potential downside given that the ASX 200 closed out 2013 at a significantly higher level at 4,802.

Obviously if you are a stock market investor, you need an investment plan that suits your own needs. 

My strategy has been very boring, simply using an averaging plan - I hold index funds in the UK and buy the industrials-focussed, low-cost LICs and banks in Australia. 

If the XJO fell to levels starting with a '3' I would be looking to start buying more heavily.

Source: ASX

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