Are you looking to make the most out of your KiwiSaver plan, but unsure which fund type aligns with your financial goals?

Here are some tips and insights to help you choose a KiwiSaver fund that fits your retirement aspirations and risk tolerance, according to our SHARE advisers.

What KiwiSaver fund types are there?

When it comes to KiwiSaver, there are generally five fund types to choose from – each with its own expected level of risk and potential returns. Let’s review them one by one, from the lowest to the highest-risk fund type.

• Defensive funds

These are the most conservative of all the fund types, as they are mostly invested in cash or cash-equivalent assets (hence the low risk). While they are the least vulnerable to market fluctuations, they’re also likely to deliver lower long-term returns than other types of funds. They may be most suitable for those who are very risk-averse or have a very short investment timeframe.

• Conservative funds

Conservative funds are usually invested in low-risk investments like bonds and cash. While slightly higher-risk than defensive funds, they tend to provide modest but stable returns. Depending on individual situations, conservative funds can be suitable for those nearing retirement or a first-home purchase.

• Balanced funds

A balanced fund strikes a middle ground between conservative and growth funds. They generally include a mix of income assets like bonds and growth assets like shares. This type of fund could be suitable for those who have medium tolerance for risk and a longer time frame until retirement or their first-home purchase. All default KiwiSaver funds are invested in the ‘balanced’ category.

•  Growth funds

These funds primarily invest in shares and property and are designed to deliver higher returns over the long term, but will usually experience bigger fluctuations along the way.  If you have a high tolerance for risk and a longer investment horizon (generally over 10 years), growth funds can be worth considering.

• Aggressive funds

Aggressive funds mainly focus on growth assets like shares and property but may also invest in other high-risk assets. The potential for substantial long-term gains is there, but so is the potential for significant ups and downs in the short term. This makes them more suitable for investors who have a long investment horizon and a high tolerance for market volatility.

What KiwiSaver fund type is appropriate for you?

One size doesn’t fit all, and understanding your own risk tolerance is a key place to start. So, think about:

• How long your investment horizon is: The longer your investment horizon, the more time your KiwiSaver investments have to bounce back from a market downturn. Generally speaking, if your investment horizon is longer than 10 years, you’re a long-term investor and you may be able to choose the higher-risk fund that your attitude to risk allows. This brings us to the next point…
• How you feel about market volatility: Your emotional comfort with market fluctuations also plays an important role in choosing the right KiwiSaver fund for you.

Regularly review your choice

The appropriate KiwiSaver fund for you today might not be the right one in five or ten years. Life events like getting married, having children, or changing career can significantly impact your financial goals and risk tolerance. So, it’s a good idea to review your KiwiSaver fund choice every few years or after major life changes.

At SHARE, we’re in your corner. We can guide you through the different options available, and help you understand your risk tolerance as well as plan for the long term, to ensure your KiwiSaver fund aligns with your life goals.

Get in touch if you’d like to discuss your needs.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.