For Investors, Another Rocky Ride During ’93 : Markets: If you liked 1992, you’ll love the new year. And while stocks still look like the place to be, you’d best buckle up.

For investors, 1992 went pretty much as originally advertised:

* Stock and bond returns were expected to drop to the high-single-digits from the double-digit windfalls of 1991. And they did.

* Small stocks were expected to beat big blue chips for a second year in a row. And they did.

* Few people expected gold, silver and other hard assets to appreciate much. And they didn’t.

But while the tally of financial returns suggests that the markets were fairly sedate last year, in fact stocks, bonds and other investments were subjected to nerve-racking volatility.

Get ready for more of the same in 1993, many experts advise. Chances are you’ll once again make more money in stocks and bonds than in short-term investments over the next 12 months, but the path will be very rocky.

* STOCKS: The “total return” (price change plus dividends earned) on most big-stock indexes was in the 7% to 9% range in 1992, a respectable if not spectacular showing. The average U.S. stock mutual fund rose about 8%, according to fund-tracker Lipper Analytical Services in New York.

Average returns on smaller stocks, however, were a hefty 10% to 15%, depending on which measure you use.

This year, if the economy and corporate profits expand at a moderate rate, analysts see 1992 stock returns repeating.

But big and small stocks alike will be buffeted throughout the year by an expected upward creep in short-term interest rates, by as-yet-unknown foreign shocks and by the much ballyhooed “change” promised by the new Administration.

What’s more, the benefits of the economic recovery will continue to be uneven for different regions, industries and individual firms. What otherwise appears to be a slow-moving bull market in fact will be peppered with as many big losers as big winners.

“The divergence in performance of individual stocks is as wide as I’ve ever seen it,” says Albert Nicholas, a veteran investor and founder of the Milwaukee-based mutual fund firm Nicholas Co. “We don’t have a typical bull market with everything going up.”

In his portfolios, Nicholas says, “we’ve got some stocks down 30% to 50% for the year, and some stocks up 30% to 50%. I suspect we’ll see more of the same.”

What usually makes stocks plunge, of course, is disappointing earnings. And that’s why many experts advise keeping a heavy bet on small stocks. Nimbler and quicker to emerge from recession, smaller firms are posting stronger profit growth overall than many blue chips.

“I think conditions are such that small companies are going to have a lot better shot at prosperity than large companies,” says Hugh Denison, whose Milwaukee-based Heartland Value Fund hunts for undiscovered small-stock gems.

The average company in his portfolio posted 20% earnings growth last year, he says, despite the stop-and-go economy. Denison is looking for a similar gain this year. Yet his average small stock is priced at just 10 times this year’s expected earnings per share--making those stocks absurdly cheap, Denison believes.

And what about foreign stocks? After a mostly lousy year, experts say only the truly patient should dabble here--those prepared to wait for the rest of the world economy to follow the U.S. recovery.

* FIXED INCOME: Interest rates followed popular expectations for the economy in 1992: rising early in the year, falling in spring and summer, then creeping higher again at year’s end.

The result was that most bond owners who sat still the entire year earned their interest coupon and maybe saw the underlying value of their bonds appreciate a little. That produced total returns in the 7% to 8% range for bonds maturing in 10 years or less and 8% to 10% for longer-term issues.

Meanwhile, investors who stayed in very short-term income investments, such as bank CDs or money market funds, were paid a paltry 3% or so for their trouble.

But in an improving economy this year, the bond market game will change, many experts believe. Short-term rates should continue to inch up from their current 1960s levels, while long-term rates (such as for the benchmark 30-year Treasury bond, now 7.39%) could actually decline further if President-elect Bill Clinton is serious about paring the federal budget deficit.

That’s why many bond fund managers are talking up the “barbell” investing approach--keeping a good chunk of money in shorter-term investments (say, three-month terms) and another good chunk in long-term bonds. The short-term end would keep rolling over at higher yields, while the long-term end could appreciate in value if Clinton credibly attacks the deficit.

For example, Jack Kallis, who manages the MetLife/State Street Government Income bond mutual fund in Boston, has been “leaning to the long end” in buying seven- to 10-year mortgage-backed bonds for his fund.

He figures that foreign investors could be ravenous for long-term U.S. bonds this year, as interest rates fall overseas in the weak global economy. If foreign money begins to chase U.S. bonds in earnest, there will be more downward pressure on yields here.

Even if long-term rates don’t fall further, most bond experts believe that the risk of disaster--i.e., a huge jump in rates that would crush the value of older bonds--is virtually nil. What Clinton says and does as President may make bonds more volatile during 1993, but the still-soft U.S. and world economic backdrops rule out a sustained rise in long-term rates just yet, analysts say.

“The point is, it’s not a bearish outlook,” says Jack Utter, manager of the IDS Strategy Income fund in Minneapolis. “I don’t see the possibility of a negative total-return scenario for bonds in 1993.”

Just the same, the safest play is probably corporate bonds over Treasuries, he says, because corporates pay more and become more sought-after in a good economy. High-yield corporate junk bonds, stars again last year, should continue their rebound as junk companies’ financial health improves.

“I can’t see anything that’s going to throw junk bonds off the track,” Utter says.

Tax-exempt municipal bonds also were fine investments overall last year. With income tax rates sure to rise under Clinton, demand for tax-sheltered munis can only strengthen, many bond pros say. If you own them, stay put; if you need them, buy a little at a time--and especially anytime yields spike temporarily in response to economic news or Administration moves.

* GOLD AND SILVER: Precious metals have become the ongoing bad joke of the investment world. Gold and silver prices now have declined every year since 1988. Platinum, at least, managed to rise last year on supply worries, but even then the gain wasn’t much: 4.5%.

“As an inflation hedge, gold has done what it’s supposed to do--it comes down with inflation,” says Bill Martin, head of the Benham Gold mutual fund in Mountain View, Calif. (Inflation held at about 3% last year--a far cry from the double-digit rates of the early 1980s.)

If you believe that the world is on the verge of another economic boom, you can bet that inflation will follow at some point. But many investment advisers figure you won’t see it this year--not until interest rates have come down worldwide, priming the pump for new growth. So gold may suffer another dismal year.

Martin sees little hope for silver, either, owing to ample global supplies. “As soon as you see a price spike in silver, they seem to open up another warehouse full of the stuff,” he laments.

1992 Investment Score Card

Did your investments beat the averages in 1992? Here’s a look at the average performance of key investment categories, as tracked by indexes in each sector. For example, “Stocks: small-company mutual funds” measures the average gain of stock funds specializing in small stocks. Also shown are 1991 and 1990 returns for each category, to put 1992 numbers in perspective. Finally, the estimated inflation rate is highlighted, to show which investments beat inflation. All returns are “total returns,” meaning price changes plus any interest or dividends earned.

Total investment return Investment 1992 1991 1990 Bonds: high-yield “junk” corporate +18.2% +34.6% -4.4% Stocks: science/technology mutual funds +10.7% +45.4% -3.1% Bonds: long-term muni tax-exempt (10+ years, G.O. issues) +10.3% +13.4% +6.9% Stocks: small-company mutual funds +10.0% +51.6% -9.9% Bonds: long-term high-quality corporate (10+ years) +9.3% +19.6% +7.4% U.S. dollar: change in value vs. key foreign currencies d +8.6% -6.1% +2.3% Stocks: blue chips (S&P; 500, with dividends) +8.2%* +30.4% -3.1% Bonds: long-term Treasuries (10+ years) +7.9% +18.4% +6.5% Bonds: intermediate-term high-quality corporate (1 to 10 years) +7.6% +15.8% +9.3% Stocks: growth mutual funds +7.5% +36.0% -5.5% Bonds: mortgage-backed +7.4% +15.8% +10.8% Bonds: intermediate-term Treasuries (1 to 10 years) +6.9% +17.5% +8.3% CDs: 5-year term, annual avg. yield a +5.8% +7.7% +8.0% Platinum: N.Y. Merc near-term futures +4.5% -17.1% -16.1% CDs: 1-year term, annual avg. yield a +3.8% +7.4% +7.8% Money market mutual funds b +3.4% +5.7% +7.8% Money market bank accounts a +3.3% +5.3% +6.2% INFLATION: CONSUMER PRICE INDEX +3.3%* +3.1% +6.1% Rare coins: top-grade c +2.0% -5.9% -20.6% Stocks: international mutual funds -4.2% +12.4% -12.0% Silver: Comex near-term futures -5.4% -7.4% -19.6% Gold: Comex near-term futures -6.0% -10.2% -2.1% Stocks: gold-oriented mutual funds -16.2% -4.5% -22.1%

* estimate

Notes: (a) Bank Rate Monitor average; (b) IBC/Donoghue’s average; (c) Coin World Trends; (d) Morgan Guaranty index. Mutual fund figures are based on Lipper Analytical indexes for each category. All bond statistics based on Merrill Lynch & Co. indexes.

Key Financial Indicators, Year to Year

Performance of key commodities, currencies, stock indexes and interest rates in 1992:

Closing quote: Investment/index 1991 1992 Change Ounce of gold (Comex) $354.10 $332.80 -6.0% Ounce of silver (Comex) $3.88 $3.67 -5.4% Barrel of oil (NY Merc) $19.12 $19.50 +2.0% German marks per dollar 1.52 1.62 +6.6% British pounds per dollar 0.536 0.662 +23.5% Japanese yen per dollar 124.80 124.85 nil Dow Jones industrial average 3,168.83 3,301.11 +4.2% NASDAQ composite index 586.34 676.95 +15.5% Nikkei stock index (Tokyo) 22,983.77 16,924.95 -26.4% FTSE-100 stock index (London) 2,493.10 2,846.50 +14.2% 30-year Treasury bond yield 7.39% 7.39% no chng. 5-year Treasury note yield 5.98% 6.04% +0.06 points 3-month Treasury bill rate 3.85% 3.08% -0.77 points