Savings still the top priority, despite growing wealth

Australians are sticking with savings products in preference to shares or managed funds, according a number of consumer and investor surveys published in recent weeks.

The ongoing preference for cash and term deposits has defied expectations and appears to fly in the face of the fact that the growth in household wealth over the past year has come from rising stock prices and residential property valuations.

Last week's Australian Bureau of Statistics financial accounts data put net household wealth at an average of A$322,757 in the December quarter - an increase of $9529 over the quarter and the biggest quarterly rise in four years.

Households held a record $831 billion in cash and term deposits. Deposits represented 22.1 per cent of household financial assets, compared with the decade average of 20 per cent.

According to a new Commonwealth Bank survey published last week, the MyWealth National Wealthbeing Indicator, 38 per cent of Australians said they would invest more this year, with 80 per cent of those expecting to increase their investments by at least $3000 over the course of the year.

There was a strong preference for strategies involving cash, superannuation and property. Shares and managed funds were the first choice for just 15 per cent of people.

The Westpac Melbourne Institute Index of Consumer Sentiment fell to 99.5 in March, down from a recent peak of 110.3 in November. A clear theme was a loss of confidence in the economic outlook and fears of more job losses.

Fifteen per cent said paying down debt was the wisest place for savings, compared with 11 per cent in December.

The proportions favouring bank deposits (29.7 per cent) and real estate (26.5 per cent) were largely unchanged from December. There was a sharp decline in the proportion favouring shares (7.4 per cent, down from 11.6 per cent in December).

According to CoreData's latest Australian Investor Report, only 22.2 per cent of respondents said they were satisfied or very satisfied with the returns their cash assets had achieved over the past year. Despite this low level of satisfaction, three in five investors intended to leave their cash investments at the current level and one in 10 intended to increase their cash allocation.

Even investors who described themselves as having a high risk tolerance put their investment plans on hold during the first quarter, reflecting a decline in confidence about economic and market conditions.

For those looking to move their cash to other asset classes, the most popular destination is direct Australian shares, closely followed by residential property.

The GPS-Melbourne Institute Leading Index of Shareholder Confidence reported that Australian retail investors fear market volatility. Confidence has been falling since May last year, with no sign of a pick-up in share buying activity, except among financial stocks.

According to the MLC Quarterly Australian Wealth Sentiment Survey, deposits and paying off debt continue to be the top investment priorities. Interest in superannuation and direct shares increased over the December quarter.

Counter to the general trend, Investment Trends found that high net worth investors were switching out of cash into shares. It reported that in 2013 this group allocated a higher proportion of their funds into direct listed shares, and less into cash and term deposits.

Australia has 400,000 high net worth investors, who are defined as people with at least $1 million of investable assets (excluding the family home, business assets and superannuation accounts, but including SMSF assets).

The HNWI allocation to cash and term deposits fell from 20 per cent to 16 per cent, while the allocation to shares rose from 26 per cent to 32 per cent.

"We find that HNWIs are a leading indicator of what the general investor population will do," said Investment Trends senior analyst Uwe Helmes.