With just one day left, I'm sticking my neck out and saying this financial year was a stinker. The average super fund has gone backwards by slightly more than 6 per cent in the past 12 months, SuperRatings says. Even by May some super funds were already down 10 per cent and they can't have improved since then, that's for sure.

Yet the early signs are that the one coming up might not be too bad at all.

A survey by the Russell Group found two out of three fund managers think the market bottomed on March 18, although they're not exactly gung-ho, either.

So what should you be doing?

Frankly, there's much to be said for doing nothing, considering you can get about 8 per cent on your money at an online bank.

The trouble is that's not going to look too crash hot a few years down the track, since you would have missed any chance to let your principal grow.

At some point you need to invest.

The economy

Meanwhile, the way the sharemarket is carrying on, you'd think the economy was in a recession. It's slowed down all right, but it's still pretty frisky.

Even the tax cuts starting on Tuesday - I can hardly wait - pale into insignificance compared with the resources boom.

For all the talk of US recessions and dangerously high oil prices, the resources surge only gets stronger.

To get it into perspective, CommSec's chief equities economist Craig James has calculated that the near tripling of coking-coal price-contracts and an 80 per cent rise in iron ore prices in the new financial year are worth $2100 each for every Australian.

But can it come to a shuddering halt this year? No, because it's like making an ocean liner turn: it takes a long time and, in any case, nobody has even moved the ship's wheel yet.

You'd think we must be digging up a hell of a lot more to be getting all this extra national income. Not so. Most of the commodity boom has been in price rises. We haven't scratched the surface yet in getting the stuff out.

That's why economists have been talking about a super cycle.

Even though prices will inevitably flatten out - if not drop - higher volumes will more than make up for the difference.

The sharemarket

Consequently most analysts expect the sharemarket to rise over the next 12 months, with some even tipping a noticeable improvement by Christmas.

Mind you, it would be fair to say few of them had predicted the sharemarket slump would be as severe as this, though a correction had been seen as long overdue.

"No one wants to buy until the new financial year," James said.

"It could be a good start. People aren't expecting another year of decline and certainly not of the same magnitude."

James predicts the market will rise by about 700 points by December 31 to 6000 - where, incidentally, it was just two months ago, though it's hard to believe - and to 6300 in a year.

Ignore resource stocks and the market is down about 40 per cent from its peak last year, putting it in the same league as the 1987 crash.

Is it trying to tell us something?

While there's no doubt it got ahead of itself toward the end of last year, that still leaves a good dose of scepticism about the economic outlook which hedge funds and other speculators are making the most of. Or maybe that should be the least of.

Anyway, at the moment economists are more upbeat than the market, which must be one for the books.

For their part brokers, naturally more prone to optimism, might not be adjusting their forecasts enough for a downturn in household spending.

Or perhaps they're all right and the tax cuts, the fact that the Reserve Bank is sitting on the fence, the commodity boom and an acute housing shortage, will all conspire to lift spending and so profits.

The real blight on the horizon are oil prices, which are a mixed blessing for Australia anyway.

Still, of all the asset classes the sharemarket will be arguably one of the less risky ones over the next 12 months.

That's simply because it's beginning from a lower base.

As a long-term performer its credentials are impeccable.

The easiest way to value the market is to look at the price-earnings ratio, which shows how long it takes to get your money back.

At the moment the market is at a P/E of 12, including a yield of more than 4 per cent. The norm is 16.

Ian Huntley, of Huntley's Your Money Weekly, calls this a "super-duper super cycle" because emerging economies are "intense investors in infrastructure."

True, he was talking long-term, where the best investments would be BHP Billiton, Rio Tinto and Woodside.

"We're the Saudi Arabia of the South Pacific and don't forget it," he told Morningstar's recent investment conference.

Shane Oliver, chief economist and head of investment strategy at AMP Capital Investors, predicts the sharemarket will hit 6350 by December 31 despite "more weakness in the next few months" amid a succession of earnings downgrades in the next half-year.

In devising a diversified portfolio you need to start with BHP Billiton, described by Morningstar's senior research analyst Mark Taylor as "the world's premier diversified mining company."

In fact you'd be getting two bites of the cherry because BHP Billiton could also be classed as an international asset as well.

Then look at anything that's been marked down because it's a cyclical stock.

These include retailers (Harvey Norman, Wesfarmers and Woolworths seem to be the fund manager favourites), banks (especially the CBA and Westpac), building (Boral, CSR and James Hardie) and manufacturing (GWA, especially).

Property trusts

A portfolio staple used to be listed property trusts (LPTs).

But, despite the recent savaging of their prices which should normally have put them in bargain territory, most analysts are surprisingly cool about them.

It's not so much that they'll get worse - although when it comes to property valuations in unlisted trusts the other shoe has yet to drop - but that they've changed irrevocably from the blue-chip certainties they once were. The reason can be slated home in one four-letter word: debt.

Property trusts have become geared to the hilt, a distinct disadvantage in the middle of a credit crunch and rising interest rates.

They've been tarred with the same brush as infrastructure funds.

But surely it would be a different case when interest rates drop?

No, there's more. Most of the big LPTs have been on an offshore buying spree, so there's the additional problem of what the exchange rate does.

Fund managers are also tending to by-pass LPTs for the new, cheaper real estate investment trusts which are springing up in Europe and some parts of Asia.

Others are switching to unlisted trusts instead.

Although these don't have to contend with a cranky market, they face the same property write-downs as LPTs.

Valad Property Group warned of write-downs last week and it's hard to believe there are many properties out there still worth last year's inflated values.

But property expert, Ken Atchison of Atchison Consultants, says LPTs have been over-sold and there's "enormous buying value".

He points to several key indicators: rising office rents, stable interest rates and still reasonable economic growth.

Housing

Going the opposite way to LPTs are houses and investment properties, which have arguably been overbought.

Even the developer Mirvac has decreased the values of some of the properties on its balance sheet by up to 5 per cent.

Worse, on economic fundamentals, Oliver estimates house prices are overvalued by 30per cent.

Relax. He thinks they'll only fall by "5 per cent or so over the next year" because of the high rate of immigration and housing shortage, as well as the commodity boom boosting incomes.

More optimistic is St George, which predicts a 5 to 10 per cent rise in housing prices.

It does this on the grounds that housing cycles last five years and the trough was reached in mid-2004, so that puts the next peak at the end of 2009.

Either way, don't expect a boom year for property.

But when interest rates eventually start falling, it could be on for one and all because of the acute shortage of accommodation.

International

Investing globally raises the same old problems all over again about which asset class to invest in when, with the additional worry of what's going to happen to the dollar.

At least you can narrow down the most desirable locations.

The booming economies are China, India, South-East Asia, Brazil and Russia.

They're all rapidly industrialising and, at some point, will have to shrug off their currency peg with the US dollar.

When that happens their currencies are also likely to rise against our dollar, giving a double dip of benefits. Except there's a catch - wouldn't you know it?

The only way to invest in them is through a specialist managed fund. Nothing wrong with that, except it also follows that your portfolio is becoming less diversified.

But how can that be if you're invested both in and outside Australia?

Because you need to be diversified internationally as well.

Having all your allocation in an Indian share fund is just as risky as having everything in, say, the Australian sharemarket. It becomes concentration, rather than diversification. A broader spread international fund would be better.

Nor do you want to overlook Europe or the US.

It's true the US is in the throes of a serious downturn, as you'd expect from falling property prices due to the subprime crisis.

Even so, it's not all gloom and doom. American exports are booming, for one thing and, because corporations didn't have an overhang of inventories, they haven't been forced to slash production.

And in Europe the introduction of real estate investment trusts are providing new opportunities.

Find the right mix

It's true that asset allocation is critical, mainly to make sure your assets are diversified.

Not only is it less risky, it also means that at any given moment you have investments going in different directions and so your portfolio is protected.

After all a collection of, say, the 10 biggest stocks isn't diversification because you're only investing in the sharemarket.

And the Australian one at that, where there's a good chance all 10 would have something to do with banking, resources and Telstra.

What about property or bonds, global shares, bonds or property, gold, other commodities or infrastructure?

The perfect portfolio would throw in a bit of everything, the exact mix depending on your own tastes.

"You need to know your goals, time horizon and risk," said financial adviser Anne Graham, managing director of McPhail HLG Financial Planning.

If you hate taking a risk, a 30 per cent allocation to the sharemarket, and then strictly in blue chips or an Australian share fund, should do.

More likely, however, a 60 per cent share allocation is going to be better for you.

And the younger you are, the more you should have relatively invested in growth areas such as shares or property than income assets such as fixed interest.

Retirees who can't afford to lose any capital are naturally more risk shy.

"My No. 1 rule for anyone investing or trading the sharemarket, and notably retirees, is to reduce risk," said Dale Gillham, chief analyst at Wealth Within.

"It is not how much you make on any one investment that makes you wealthy, it is how much you do not lose over time."

One thing's for sure, flitting from one asset to another each year isn't the way to go.

Tempting as it is, moving to the hottest performer each year is self-defeating. You'd be building up losses as you quit under-performing assets, only to jump on the bandwagon just as it's about to stop.

The only way you can be sure you'll get full value out of your ride with a particular asset is if you climb on board before it starts to move.

Which means being diversified because you won't know in advance which one it's going to be.

Not even the sharemarket, which had a record bull run until last year, was always the best performing asset.

It was best in two of the past five years. The other winners were hedged international shares and property trusts (twice).

Speaking of which, property trusts went from best to worst performer only a year later.

So the trick is to spread your eggs around so you're not second-guessing what's going to be hot next. And if the sharemarket is freaking you out, you need to look at why you're there in the first place.

Either you misread how you'd cope with volatility - "what's in the head can be different to what's in the heart", as Graham puts it - or your financial situation has changed, in which case you need to revisit your asset allocation.