Term deposits and bank savings continue to hold the top spots as best investments even as term deposit rates slip below 5%.
The Bank of New Zealand has dropped its nine-month minimum term rate to 3.5% for deposits of $100,000 or more.
Sharebrokers report that many shares are paying dividends that equate to double digit yields on current share prices.
But the ASB Investor Confidence Report says that by the end of last year, 18% of investors opted for the safety and surety of term deposits as the best return of all investment types.
That response, though down 3% from September, kept term deposits in first place.
Bank savings were in second place at 16% and rental properties retained their third position at 15%.
"This consolidation for term and bank deposits in the fourth quarter may have been cemented because of the retail deposit guarantee scheme," ASB investment services manager Jonathan Beale said.
"Investors have had a bumpy ride and may be prepared to forsake higher possible returns in some of the more volatile investments in favour of a good night's sleep and a more modest but reliable return."
While overall investor confidence had retreated to some of the lowest levels seen in the past 10 years of the ASB report, the October to December period was one of the most volatile periods many people would have experienced, he said.
In the past year there had been a 15% increase in the number of investors who viewed KiwiSaver as being their primary means of retirement saving.
In December 2007, 31% of KiwiSaver users and intended users viewed the scheme as their primary savings vehicle. That had increased to 46% in December last year.
Confidence in KiwiSaver had also increased from 2% to 6% in the period.
Mr Beale said the attitude towards shares and managed investments were surprisingly resilient given the turmoil that took place in global shares in the last quarter of last year.
Despite investor confidence being at the lowest it had been in a decade, hitting the panic button should be avoided for long-term investors.
"While the 2009 economic environment will be challenging, it is also important to realise that it may open up some investment opportunities to take advantage of which could bear fruit in the longer term."
However, ABN Amro Craigs broker Peter McIntyre said that investors in PIEs (portfolio investment entities) needed to take into account the personal tax cuts coming into force on April 1.
The PIE regime took effect from October 1, 2007 and greatly improved the tax effectiveness for investors of managed funds that chose to become PIEs.
The National-led Government introduced the Taxation (Urgent Measures and Annual Rates) Bill which provided for a personal tax cut programme to be phased in over three years.
That had implications for PIEs given that many people had perceived the main advantage of PIEs was their potential tax benefit.
Tax on income from a PIE was capped at the corporate rate of 30%.
That provided tax savings for investors whose tax rates were above that rate, Mr McIntyre said.
"The relative tax benefit of investing in a PIE versus investing directly, reduces significantly under the lower personal taxes that are due to be phased in over the next three years."
Under the 2007 rules, an investor sourcing $60,000 of income from PIEs stood to make a tax saving of $2970 compared to investing directly.
This year, ABN estimated that tax benefit would shrink by 60% to be only $1149. By 2011, the tax benefit would be just $550.
A similar pattern was seen for investors with higher levels of income.
The management fees incurred on an investment in a PIE would often offset the potential tax advantage, he said.
To generate an income of $60,000 an investor might have $1 million invested at an assumed return of 6%.
In 2009, a management fee of just 0.12% would be enough to offset the $1149 tax benefit from investing in a PIE.
"It is never wise to allow tax to drive investment decisions. In our view, investors should consider PIES not for their perceived tax benefit but for the usual benefits of pooled funds, diversification and access to astute fund managers."
To be attractive investments, PIEs needed to be have a fair level of fees, be prudently diversified and be managed well in the best interests of investors, Mr McIntyre said.
