Are growth funds really your best investment option?

Kiwis are riding out the highs and lows of riskier KiwiSaver fund types, with a third of members belonging to a growth fund, new data reveals.

As at 31 March, 943,453 KiwiSaver members have a combined total of $11,863,256,411 in growth KiwiSaver funds. Membership in growth funds accounts for 34% of the total KiwiSaver membership pool of 2,772,147, according to the latest Financial Markets Authority annual report.

Growth KiwiSaver funds hold anywhere from 63% to 89.9% in growth asset funds, such as shares and property. This fund type is generally suited to investors looking for fairly high growth over the long term, who are comfortable with some fluctuations in balance and who don’t expect to expect to withdraw their funds for at least 10 years, according to KiwiSaver.govt.nz.

Compare KiwiSaver funds with Canstar

Following growth funds, balanced funds have the next highest number of members, with 643,453 investors – 23% of total KiwiSaver membership – with a combined $10,936,479,982 in this fund type.

Balanced funds have 35% to 62.9% in growth assets and are generally suited to those who expect to withdraw their funds within the next five to 12 years.

Those in a conservative fund – excluding default funds – account for 602,587 (21.7%) of the total KiwiSaver membership.

Conservative funds are considerably lower risk, with 10% to 35% invested in growth assets.

KiwiSaver fund types differ on risk level

So, while growth funds have the highest number of members when looking at a single fund type, almost 45% (44.7%) are in a less-risky KiwiSaver fund – conservative or balanced – that has 62.9% of their KiwiSaver fund involved in growth assets.

And it’s important to remember that some members are invested in more than one investment fund type. For example, a KiwiSaver may split their investment across a provider’s growth and balanced funds.

Looking at total KiwiSaver membership, there are 2,250,115 KiwiSaver members who are at least 10 years away from retirement (are 55 years of age or younger). This could be a contributing factor as to the one in three memberships in the relatively high-risk growth funds.

However, in saying that, some KiwiSaver members will withdraw funds prior to retirement, such as for a first home deposit.

An investor’s appetite for risk is an important part of selecting a KiwiSaver fund type. For example, if an investor is uncomfortable watching fluctuations in account balance, then lower risk fund types may be more palatable.

However, when you plan to withdraw KiwiSaver funds – and for what reason – are also important decision-making factors as are, of course, the all-important fees.

Compare KiwiSaver funds with Canstar

Canstar has written a guide on pointers to selecting a KiwiSaver fund type, as well as what to watch out for when it comes to fees.

In 2017, Canstar analysed and rated 16 KiwiSaver providers, with a total of 19 KiwiSaver schemes and a combined total of 129 funds. To see how KiwiSaver providers and funds stack up, check out Canstar’s report.

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