Is it still safe to invest in 2014?

Fed had just started tapering their quantitative easing (QE) policy in December 2013. They will start with $10 billion dollars a month and is expected to gradually increase this amount in each of their 2014 meeting. This signals the start of removing "easy money" from the economy. Although this action targets the US economy, it inevitably creates a rippling effect across the world. As the old saying goes, "When US sneezes, the rest of the world catches a cold". So what will be the best bet for investing in 2014?

Equities

A lot of analysts have recommended sticking to equities. Although Dow and S&P have reach their highest point in 2013, the analysts are proclaiming that there is still room for further increase. Dow index components are trading at PE of 17 with dividend yield of 2%. This is hardly rewarding for those who are into value investing. STI is at a PE of 12 and this is slightly below its long term PE of 14.  Given a choice, I would choose STI over the US market for now. I will still invest in equities, but will go in with my eyes wide open. One good way is to buy STI ETF that tracks the index. This gives you exposure to the full range of STI component stocks with a smaller initially cash outlay.

Bonds

Bonds are the next class of possible investment. However, given the imminent scenario of interest rate increment in 2015, bond prices will tend to drop. Singapore, being a open economy, has its interest rate tied closely to that of USA. This also means that interest rate will increase in Singapore and bond prices will increase. Therefore, this is one asset class which I will advise investors to stay clear of bonds for now.

Is keeping cash a good option?

The interest bearing accounts in Singapore banks are very low. In fact it is less than the official inflation rate of the country. So it is not wise to keep too much cash. My advise is to keep enough cash that can sustain your lifestyle for 6 to 9 months if you are out of work. The rest of the money should be made to work harder. The closely alternative to cash and fix deposit will be money market fund. These funds invest in short duration bonds that aims to give a better return rate than banking accounts, but at the same time, is not as risky as normal unit trust that invest in equities or long term bonds.

I have no experience in other investment class such as forex, precious metal or alternative investment like wine or painting, so I will not comment on them. On a closing note, do not stop investment completely. You can never time the market and it pays to invest small amount regularly to enjoy the benefits of dollar cost averaging.