Few market strategists believe 2014 will be anywhere near as good as 2013 was. The simple strategy of buying U.S. stocks, selling bonds, and staying out of international markets isn't going to work as well as it has, they say.
So some of Wall Street's biggest money managers have come up with a few resolutions to help your retirement portfolio have a good year.
Curb your expectations. Few investors thought 2013 would be as big as it was - the S&P 500 index is having its best year since 1997. But on average, market strategists expect 2014 to be somewhat tame. Most are looking for the S&P 500 to gain only about 2 percent to 4 percent, staying in the 1,850-to-1,900 range.
Keep an eye on valuation. Investors bid up stock prices to all-time highs this year, despite a mediocre economy and corporate profits that were less than spectacular.
At the beginning of 2013, the price-to-earnings ratio on the S&P 500 was 13.5, meaning investors were paying roughly $13.50 for every $1 of earnings in those stocks. Now, the S&P 500's P-E ratio is about 16.7. Though that won't set off any alarm bells - the historical average is 14.5 - it is noticeably higher than it was a year ago.
Investors have high expectations for corporate profits next year, based on the prices they are paying.
"It's hard to believe that this market can go much higher from here without some corporate earnings growth," said Bob Doll, chief equity strategist at Nuveen Asset Management.
Profit margins are already at record highs, and corporations spent most of 2013 increasing their earnings by cutting costs or using financial engineering tools like buying back stock.
Earnings at companies in the S&P 500 grew at an 11 percent rate in 2013. The consensus among market strategists is that profit growth will slow to about 8 percent in 2014. But if the economy continues to improve and corporate profit margins expand, it could justify the stock prices investors have paid.
Beware the euphoria. A lot of investors stayed on the sidelines over the last five years. Since the market bottomed in March 2009, investors have pulled $430 billion out of stock funds, according to data from mutual-fund research firm Lipper, while putting nearly $1 trillion into bond funds.
Professional market watchers are concerned that many individual investors, trying to play catch-up, might rush in with a vengeance next year. The surge of money could cause stocks to surge, too, if investors ignore warnings that the market is getting overvalued.
"I fear people who sat out 2013 will jump in too fast next year and get burned," said Richard Madigan, chief investment officer for JPMorgan Private Bank.
Don't panic, either. Stocks can't go higher all the time. Bearish investors have been saying for months that stocks are due for a pullback in the near future.
In their 2014 outlook, Goldman Sachs analysts said that while the market has been strong, they see a 67 percent chance that stocks will decline 10 percent or more in 2014. But they still expect stocks to end the year modestly higher.
Cut exposure to bonds. Fixed-income investors had a tough year in 2013. The Barclays Aggregate bond index, a broad composite of thousands of bonds, fell 2 percent. Investors in long-term bonds were hit even harder, losing 15 percent of their money since the beginning of the year, according to comparable bond indexes.
The new year is not looking good, either. The Federal Reserve has started to pull back on its bond-buying program, which could send prices falling.
All this doesn't mean investors should avoid bonds altogether, strategists say. Instead, reorganize portfolios to focus more on bonds that mature in relatively short periods - their prices tend to fluctuate less than those of bonds that take longer to mature, and are less likely to lose value when interest rates rise, as many expect in 2014.
Under normal circumstances, Madigan said, he would advise investors to hold bonds that mature in an average of about five years. For 2014, he is advising an average of two to 21/2 years.
"Long duration bonds are much more a riskier asset than a safe asset next year," he said.
The alternative to stocks? The average investor typically has access to three other types of investments: cash, bonds, and commodities such as gold. None is expected to perform better than the stock market next year.
"Bonds are hardly a place to be in 2014," Nuveen's Doll said.
Gold is expected to have another tough year in 2014. Analysts at Barclays Capital expect gold to end 2014 at $1,270 an ounce, about 6 percent higher than where it is today.
Cash is expected to provide a near-zero return again next year. Savings and money-market accounts are returning less than 0.1 percent on average.