KiwiSaver: Which Fund Type Is Right For Me?

An oft-repeated mantra about financial products is that there isn’t a one-size-fits-all solution or product. This is no less true when it comes to KiwiSaver. There are a few things you need to consider when choosing the right KiwiSaver fund for you.

They include: your age, appetite for risk and when you plan to withdraw your KiwiSaver funds. If you’re 25 and looking to buy your first home in the next 10 years, for example, you’ll have different fund-picking priorities than if you’re 55 with retirement in mind.

Where to start

If you’re already a Kiwisaver member, make sure you’re aware of your current provider and fund type. You’ll find this information on recent correspondence you’ve received from your provider.  Once you know this, you can use Canstar’s comparison tables to check your fees and returns for the past five years.

You should also make sure you’re registered for your provider’s web services, so you can check you balance and membership information online.

Different Kiwisaver funds: who do they suit?

Below, we’ve listed the main KiwiSaver fund types, to help you narrow down your options to suit your financial needs.

What are Defensive KiwiSaver funds and who are they suitable for?

Defensive KiwiSaver funds hold less than 10% in growth assets. Growth assets are things like stocks and shares, which can fluctuate in value. Instead defensive funds hold things like cash and government bonds.

Defensive funds are generally suitable for investors who have a low appetite for risk. So, if you’re put off by seeing your KiwiSaver account balance get hit by stock market slumps, this may be the type of fund for you. However, there are still no guarantees that you won’t incur losses.

The trade-off for less risk is that your KiwiSaver account balance almost certainly won’t grow as fast as it would in a more aggressive fund type. It may not even keep up with inflation.

In the long term, you’d expect to contribute more each year to reach a long-term savings goal than in a higher risk fund. However, if you’ve already reached your savings goal, or are looking to make a withdrawal in the short term, a defensive fund is a good way to protect your investments.

Investment asset classes: Mainly bank deposits and other fixed-interest investments, such as bonds (debt securities). Up to 10% invested in growth assets, such as shares and property.

Defensive KiwiSaver fund types are generally suitable if you expect to use the funds within the next three years.

What are Conservative KiwiSaver funds and who are they suitable for?

Conservative funds hold 10% to 34.9% in growth assets. Conservative funds are generally suitable for investors who are comfortable with some ups and downs in value. This fund type might suit an investor seeking average long-term returns, slightly higher than in a defensive fund, but not as high as in a riskier fund type, such as balanced, growth or aggressive funds.

Investment asset classes: Mostly bank deposits and fixed-interest investments, such as bonds. 10%-35% invested in growth assets such as shares and property.

Conservative funds are generally suited to those who plan to withdraw funds within the next two to six years.

What are Balanced KiwiSaver funds and who are they suitable for?

Balanced KiwiSaver funds are typically suited to investors who are comfortable seeing a fair degree of variation in their balance. The payoff is potential greater long-term returns than those offered by conservative or defensive funds.

Investment asset classes: 35%-62.9% in growth assets, such as shares and property. Remaining proportion in more defensive assets, like cash, bank deposits, bonds, and other fixed-interest investments.

Balanced KiwiSaver funds are generally suited to those seeking mid-range, long-term returns, and who expect to withdraw their KiwiSaver money within the next five to 12 years.

What are Growth KiwiSaver funds and who are they suitable for?

Growth KiwiSaver funds hold a significantly larger proportion of growth assets: 63% to 89.9%. Growth funds are generally suitable for those who are looking for fairly high growth over the long term. And those who won’t be tempted to switch to a lower-risk fund if they see their balance drop significantly – which is expected from time to time.

Investment asset classes: 63%-89.9% invested in growth assets, such as shares and property. Remaining balance invested in more defensive assets, such as term deposits, bonds and other fixed-interest investments.

These funds have the potential for higher returns and balance growth (hence the name) than options with a lower proportion of growth assets. The downside is that they’re more prone to frequent swings in value, as investments move up and down with the market.

This fund type is generally suited to an investor who does not expect to withdraw their funds for at least 10 years. If you’re heading into growth fund territory, then you probably have a fairly large appetite for risk, and aren’t expecting to withdraw funds in the immediate future.

What are Aggressive KiwiSaver funds and who are they suitable for?

Aggressive KiwiSaver funds are for investment thrill seekers with an extremely large appetite for risk. These types of KiwiSaver funds hold a large proportion of their investments in growth assets – at least 90% and as high as 100%.

Aggressive KiwiSaver funds are generally suitable for investors who are in it for the long haul, and are looking for strong long-term growth. But remember, it’s important to be comfortable with watching sharp drops in your balance before you opt for this fund type.

Investment asset classes: 90%-100% invested in growth assets, such as shares and property. Aims to achieve high returns over a long-term time frame. These investments carry the potential for higher returns, but also more frequent and larger drops along the way.

Aggressive KiwiSaver funds are generally for investors who aren’t planning to withdraw funds for at least 10 years.

What else is there to consider when choosing a KiwiSaver fund?

• How much you are paying in fees, against the rate of returns? Generally speaking, you can expect to pay more in fees for funds containing a greater proportion of growth assets. This is because the rate of return is expected to be higher. Also, many are more actively managed, rather than passively following an index. For more on the differences between active and passive funds, check out our story: Active Investing vs Passive: What it Means for your KiwiSaver.
• You are only able to belong to one KiwiSaver scheme, but most providers allow you to split your investment across multiple fund types. This gives you the option to split your funds across risk levels. For example, you might put money you plan to spend in the next few years in a less risky fund, such as a defensive or cash fund, and then allocate some long-term funds to a riskier fund, such as a balanced or growth fund.
• Are you using KiwiSaver to help save for a first home? If you plan to withdraw funds to put towards a first home deposit, it’s likely you plan to withdraw your funds in a shorter time-frame than you would if you were using it only as a retirement savings scheme. In this instance, choosing a fund with less risk is a more precautionary approach.

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