Understanding KiwiSaver fund types
KiwiSaver funds range from conservative (lowest risk, lowest potential returns) to aggressive (highest risk, highest potential returns). Each fund type has a different investment approach and suits different investors at different life stages.
The five main fund categories are defensive, conservative, balanced, growth, and aggressive. Understanding what each holds and how they perform in different economic conditions is essential to making an informed choice.
Defensive funds
Defensive funds are the most cautious investment option, typically holding 80-100% cash and cash-equivalent investments like short-term bonds and money market instruments. These funds are designed for members nearing retirement who cannot afford significant market volatility.
While defensive funds offer stability and predictable returns, they struggle to keep pace with inflation over time. If you have 20+ years until retirement, defensive funds will likely underperform significantly compared to growth-oriented options.
Conservative funds
Conservative funds typically allocate 20-30% to growth assets (shares and property) and 70-80% to defensive assets (bonds and cash). These funds suit members in their 50s or those approaching retirement with a moderate appetite for some market risk.
Conservative funds offer a balance between stability and growth potential. They experience less volatility than growth funds but may still fluctuate during economic downturns.
Balanced funds
Balanced funds target a 50/50 or 60/40 split between growth and defensive assets. These are the default KiwiSaver funds for most members and suit mid-career workers aged 30-50 with a reasonable time horizon.
Balanced funds provide moderate growth potential with moderate volatility. They're appropriate for members who want exposure to markets without extreme risk, making them one of the most popular KiwiSaver options.
Growth funds
Growth funds typically hold 70-80% growth assets (shares and property) and 20-30% defensive assets. These funds are designed for younger members with 20+ years until retirement who can tolerate significant volatility for higher long-term returns.
Growth funds have historically delivered the best returns over extended periods, but they also experience substantial short-term fluctuations. If you panic-sell during market downturns, you lock in losses.
Aggressive funds
Aggressive funds allocate 80-100% to growth assets with minimal defensive holdings. These funds are for young members (typically under 40) with a very high risk tolerance and a 25+ year investment horizon.
Aggressive funds offer maximum growth potential but experience the greatest volatility. Market downturns can cause 30-50% temporary declines, so only choose aggressive funds if you can stay invested through market cycles without panic selling.
Assessing your risk tolerance
Risk tolerance is your ability and willingness to endure investment losses without panic selling. It's one of the most important factors in choosing a KiwiSaver fund.
Consider these questions: How would you feel if your KiwiSaver balance dropped 30% in a market downturn? Would you stay invested or panic sell? Can you tolerate short-term losses for potentially higher long-term gains? How comfortable are you with market volatility?
Your risk tolerance depends on your emotional temperament, financial situation, and investment experience. Don't choose an aggressive fund just because it has higher long-term returns if volatility causes you significant stress.
Time horizon and life stage
Your time until retirement is perhaps the most important factor in fund selection. Younger members can afford to take more risk because they have decades to recover from market downturns. Older members approaching retirement need stability.
Age-based approach
A common guideline is the "age in bonds" rule: hold a percentage of defensive assets equal to your age. A 30-year-old might hold 30% defensive assets and 70% growth assets. A 50-year-old might hold 50% defensive assets and 50% growth assets.
While this rule is not perfect, it reflects the principle that younger workers should take more investment risk. However, it's not a one-size-fits-all solution. Your specific circumstances matter more than a simple age-based formula.
Younger members (under 35)
Members under 35 typically have 30+ years until retirement. Growth or aggressive funds are usually appropriate. With such a long time horizon, short-term market volatility becomes less important than long-term growth potential.
Even if markets fall significantly, you have decades to recover. Historical data shows that long-term share market returns significantly outpace bonds and cash, making growth-oriented funds suitable for younger members.
Mid-career members (35-50)
Members aged 35-50 might shift from growth funds to balanced or growth-balanced funds. Your risk tolerance should still remain relatively high, but you may want slightly more stability as retirement approaches.
This is an ideal time to review your fund choice. If you haven't invested in KiwiSaver yet, you should still prioritise growth given your remaining time horizon.
Members approaching retirement (50-65)
As you approach retirement, gradually shifting towards conservative or balanced funds makes sense. You can't afford to have your retirement savings heavily affected by market crashes close to your withdrawal date.
However, don't become too conservative too early. If you retire at 65 and live until 95, you have a 30-year retirement horizon. Investing everything in defensive funds may not provide enough growth to maintain your lifestyle.
Matching fund types to your situation
Choosing a fund requires integrating your risk tolerance, time horizon, and personal circumstances.
| Life stage | Recommended fund types | Key considerations | Time horizon |
|---|---|---|---|
| Early career (20-35) | Growth, aggressive | Maximum time to recover from volatility. Focus on long-term growth. | 30+ years |
| Mid-career (35-50) | Balanced, growth | Still substantial time horizon. Can tolerate volatility. | 15-30 years |
| Pre-retirement (50-60) | Balanced, conservative | Approaching retirement. Reduce volatility gradually. | 5-15 years |
| Near retirement (60-65) | Conservative, defensive | Cannot afford significant losses. Prioritise stability. | 0-5 years |
Comparing funds across providers
Not all growth funds perform equally. Different KiwiSaver providers use different investment strategies, which affects returns and volatility.
When comparing funds, look at historical performance over 5-year and 10-year periods (not just 1-year performance, which can be misleading). Check the fund's asset allocation to ensure it matches what the provider claims. Review the fund's fees, which significantly impact your net returns.
Use RatePal's KiwiSaver fund finder tool to compare funds across providers easily. You can filter by fund type, fees, performance, and other metrics to find the best option for your situation.
Fees and their impact
KiwiSaver fees directly reduce your returns. A fund charging 1% in fees versus 0.5% might seem like a small difference, but over 30 years, this compounds significantly.
Always check the annual management fee before selecting a fund. Conservative and defensive funds often charge lower fees than growth and aggressive funds. However, don't choose a lower-fee fund if it doesn't match your risk profile or investment goals.
Use our KiwiSaver fee calculator to estimate how different fees affect your long-term retirement balance.
Special considerations
Balanced funds as a default
If you don't actively choose a fund, most KiwiSaver providers default you to a balanced fund. This is actually a reasonable default, but you should review whether it truly suits your situation.
Don't passively accept a default fund. Take time to assess your needs and switch if necessary. Changing funds is usually free and can be done through your provider's online portal.
ESG and ethical funds
Some KiwiSaver providers offer environmental, social, and governance (ESG) funds that exclude companies involved in fossil fuels, weapons, or poor labour practices. If ethical investing aligns with your values, these funds allow you to invest according to your principles.
ESG funds may have slightly different performance characteristics than mainstream funds, but historical data shows they can perform competitively over the long term.
International diversification
Most KiwiSaver funds include international share exposure. This diversification reduces reliance on the New Zealand economy. Some providers allow you to choose funds with higher or lower international exposure.
International diversification helps smooth returns across different economic cycles. Having exposure to developed markets, emerging markets, and different currencies provides important portfolio balance.
Reviewing your choice
Your financial situation, risk tolerance, and time horizon change throughout your life. Review your KiwiSaver fund choice annually or whenever major life events occur (job change, marriage, inheritance, etc.).
Life events that should trigger a review include: changing jobs (especially from private to public sector), becoming self-employed, receiving an inheritance, significant income changes, or major relationship changes.
Don't obsess over short-term performance. A fund that underperforms for one year may outperform over 5 years. Focus on whether your chosen fund still aligns with your long-term goals and risk tolerance.
Pro tip: Automate your investment strategy
Consider using a "balanced approach" where you maintain a consistent asset allocation. Some KiwiSaver members find it helpful to shift gradually from growth to conservative funds as they age, automating this transition through provider switches rather than trying to time markets.
How to switch funds
Changing your KiwiSaver fund is straightforward. Contact your provider directly or use their online portal to request a fund switch. Most switches are free and take effect within days.
When switching, ensure your contributions start going to the new fund immediately. You can also switch your existing balance, though some providers allow you to split your balance across multiple funds if you prefer.
Find your ideal KiwiSaver fund
Choosing the right KiwiSaver fund depends on your age, risk tolerance, and investment timeline. Use our fund comparison tool to explore options across all major providers, compare fees, performance, and asset allocation, and make an informed decision about your retirement savings.
Frequently asked questions
What's the best KiwiSaver fund for someone in their 30s?
Most people in their 30s should invest in a growth or aggressive fund. With 30+ years until retirement, you have time to recover from market downturns. Historical data shows growth assets deliver significantly higher returns over extended periods, so prioritising growth potential makes sense at this life stage.
Can I change my KiwiSaver fund multiple times?
Yes, you can change your KiwiSaver fund as often as you like. Most switches are free, and you can request changes through your provider's online portal. There's no limit on how many times you can switch, though frequent switching based on short-term performance isn't advisable.
What happens to my existing balance when I switch funds?
When you switch funds, your existing balance is typically transferred to your new fund (unless you request otherwise). Some providers allow you to split your balance across multiple funds. Check with your provider about their specific switching procedures.
Should I choose an ESG fund if I care about ethical investing?
If ethical investing aligns with your values, ESG funds allow you to invest according to your principles. These funds exclude companies involved in fossil fuels, weapons, or poor labour practices. Performance-wise, ESG funds have historically performed competitively, so you don't need to sacrifice returns for your values.
How do I know if my current fund is appropriate?
Review whether your fund matches your time horizon, risk tolerance, and investment goals. If you're significantly older or younger than the typical investor in your fund type, or if market volatility keeps you awake at night, your fund may need adjustment. Compare your fund's fees and performance against alternatives using our comparison tools.