KiwiSaver fund types explained

The one number behind every label

Fund managers describe portfolios in terms of growth assets and income assets. Growth assets are shares and listed property: higher long-run returns, bumpier ride. Income assets are cash and bonds: steadier, lower returns over decades.

A fund's label is really a statement about that mix. Nothing stops two providers using the same word for slightly different splits, so if you want to compare like with like, look for the growth-asset percentage in the fund update rather than trusting the name.

• Defensive — roughly 0-20% growth assets. Mostly cash and short-term bonds.
• Conservative — roughly 20-40% growth assets.
• Balanced — roughly 40-60% growth assets.
• Growth — roughly 60-90% growth assets.
• Aggressive — roughly 90-100% growth assets, sometimes with borrowing on top.

Defensive funds

A defensive fund is built to keep the number on your statement roughly where you left it. It holds cash, term deposits and short-dated bonds, and the returns after fees and tax are modest — in low-interest years they can barely beat inflation.

That is not a flaw. It is the correct tool when the money is spoken for. If you are settling on a house in eight months, a defensive fund means the deposit that exists today still exists at settlement.

Conservative funds

Conservative funds add a slice of shares to the mix. You accept the occasional negative year in exchange for a bit more growth. Historically these funds have had far shallower falls than growth funds, and recovered from them faster.

They suit people within about three to five years of needing the money, and people who genuinely could not sit through a large fall without switching out at the bottom.

Balanced funds

Balanced is the middle ground and the most common landing spot for people who have never thought about it. Roughly half your money chases growth, half cushions the fall. Over a full market cycle you should expect several down years and considerably more up ones.

Balanced is a reasonable default for a six-to-twelve-year horizon. It is often too cautious for a 28-year-old who will not touch the money for 35 years, and too racy for someone retiring next year.

Growth and aggressive funds

Growth funds put most of your money into shares. Aggressive funds put almost all of it there, and a handful use borrowing to go further. The long-run returns have been the highest of any category — and so have the drops.

The honest test is not 'do I want higher returns?' Everyone does. It is 'if my balance fell from $80,000 to $55,000 over a few months, what would I actually do?' If the answer is 'switch to something safer', you would lock in the loss, and a growth fund is the wrong fit no matter how long your horizon is.

The other half of the test is timing. A growth fund needs time to recover from bad years. If your money is coming out within a few years, the timeframe, not your nerve, makes the decision.

Why the default fund is not the right fund by accident

Since December 2021 the government default funds have been balanced funds, after years of being conservative. Hundreds of thousands of New Zealanders were auto-enrolled and never chose anything. Balanced may well suit them. Nobody checked.

Choosing deliberately is free and takes minutes. That is the entire argument for doing it.

Fees matter more than the label at the margins

Two balanced funds can charge 0.5% and 1.4% a year for broadly similar portfolios. Over a working life, that gap can quietly remove tens of thousands of dollars from your final balance — with certainty, in every market, up or down.

Pick the risk level that matches your timeframe first. Then, within that risk level, treat a high fee as something the fund has to justify.