Moderate vs Balanced vs Growth Funds - What KiwiSaver is right for me?
If you're joining KiwiSaver, deciding what fund type to invest in may feel like a big responsibility. Many New Zealanders pick the wrong funds and lose out on growth over the long term. Our guide outlines everything you need to know to help you make the right decision
Updated 13 September 2024
Summary
To help you make an informed decision, our guide covers:
Know this first: The Financial Markets Authority, a Government Agency, makes it clear: "Growth and aggressive funds typically have higher long-term returns". Their website states:
Summary
- For the most part, KiwiSaver funds are helpfully categorised by 'types' such as "conservative" and "growth". The idea behind this is to make it easier for you to pick a fund based on how much risk you're prepared to take.
- Most New Zealanders are arguably suitable for growth funds, given KiwiSaver is a long-term investment. The good news is there are many to choose from, the track record of top funds is impressive, and the fees have never been cheaper.
- As a bonus, many growth funds have outperformed aggressive funds in the short term and even the long term. Just because a fund calls itself "aggressive" doesn't mean it's "better" than a growth fund.
- Returns data suggests the fund manager's skill helps deliver a fund's returns, not the percentage of money invested in the sharemarket (vs that allocated to cash assets). For this reason, we always suggest looking at long-term performance data. This way, you can make an informed decision.
To help you make an informed decision, our guide covers:
- Conservative vs Moderate vs Balanced vs Growth vs Aggressive Funds - What is the Difference and What do the Names Mean?
- How Everyday New Zealands are Investing their KiwiSaver - Profile Examples of Everyday Kiwis
- Conclusion and Next Steps
Know this first: The Financial Markets Authority, a Government Agency, makes it clear: "Growth and aggressive funds typically have higher long-term returns". Their website states:
- Growth and aggressive funds have a much higher proportion of ‘growth’ assets.
- Growth assets are things like shares and property and these go up and down in value more frequently than ‘income’ assets like cash and bonds.
- This means their returns may rise and fall quickly. However over time they typically provide a higher return.
MoneyHub Founder Christopher Walsh shares his views:
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"Many New Zealanders don't know what KiwiSaver fund they should be in. Even worse, many people have been stuck in default funds that underdelivered on returns year after year".
"I believe picking a fund is easy - you don't need to think about it too much, and what matters is that you join KiwiSaver rather than sit on the sidelines". "For most people, a growth fund will arguably be a suitable choice. Unless you're retiring or about to withdraw KiwiSaver to buy a house, growth funds are designed to maximise your fund's returns over your lifetime". "There are so many tools that show you the best performing funds. I'm a big fan of Morningstar, and this video shows you how to use their free PDF reports to pick a fund that has proven long-term returns". "Whatever you decide to do, please know that you can change your fund at any time. Also, while I would argue a growth fund is suitable for most New Zealanders contributing to KiwiSaver for the long term, some people are less willing to take risks. For this reason, there are dozens of 'conservative' and 'moderate'-type funds available". |
MoneyHub Founder Christopher Walsh
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Your investor guide to Moderate vs Balanced vs Growth Funds is sponsored by our friends at Kernel, a platform that offers a range of investment products (e.g. balanced, high growth funds) and innovative technology to grow your wealth with ease and all in one place.
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Conservative vs Moderate vs Balanced vs Growth vs Aggressive Funds - What is the Difference and What do the Names Mean?
Our summary below is designed to explain each fund type's facts, pros, and cons. Most New Zealanders joining KiwiSaver will choose a growth fund. However, it's not for everyone, and we give examples of the KiwiSaver needs of a range of New Zealanders in the next section below.
Conservative KiwiSaver Funds
The FMA states someone who is generally suitable to a conservative fund is "willing to take on some ups and downs in value, and are seeking average long-term returns a bit higher than in a defensive fund but probably not as high as in riskier funds".
- Suggested investment term: 4-5 years
- Investment mix: 10% to 35% in growth assets
- Examples of top-performing Conservative funds: Pathfinder Conservative, Milford Conservative, ANZ Conservative
- Pros: Low fees and investments are the lowest risk
- Cons: Investment values can still drop, returns may be lower than inflation, and missed growth opportunities if markets perform well.
Moderate KiwiSaver Funds
The FMA doesn't define "moderate funds", but generally, they invest around 40% into growth assets and 60% into cash and fixed-income assets. Moderate funds are for those wanting to avoid the risks of the sharemarket that balanced and growth funds while still having some exposure to shares.
- Suggested investment term: Around 5 years
- Investment mix: Around 40% in growth assets
- Examples of top-performing Moderate funds: Aon Russell Lifepoints Moderate, MAS Moderate and Milford Moderate.
- Pros: Low fees, and the investments are lower risk than a balanced, growth or aggressive fund
- Cons: Investment values can still drop, returns may be lower than inflation, and missed growth opportunities if markets perform well. This is because around 60% of your money is sitting in fixed interest.
Balanced KiwiSaver Funds
The FMA states someone who is generally suitable to a balanced fund is "middle of the road, comfortable with seeing the value of their investments sometimes fall a little and seek mid-range long-term returns".
- Suggested investment term: 6-8 years
- Investment mix: 35% to around 65% in growth assets
- Examples of top-performing Balanced funds: Kernel Balanced, Milford Balanced, Simplicity Balanced and ANZ Balanced.
- Pros: Around half of your money is invested in the sharemarket while half is in relatively more secure fixed-interest, which can cushion any drops in share prices.
- Cons: Again, there are potential missed growth opportunities if markets perform well. This is because around half of your money is sitting in fixed interest. The returns generated from fixed interest may also be lower than inflation, meaning your investment loses money in real terms.
Growth KiwiSaver Funds
The FMA states someone who is generally suitable to a growth fund is "looking for fairly high growth over the long term, and won't want to switch to a lower-risk fund whenever the balance falls quite a lot".
- Suggested investment term: 9-12 years
- Investment mix: 63% to around 90% in growth assets
- Examples of top-performing Growth funds: Milford Active Growth, MAS Growth, Fisher Growth and Simplicity Growth
- Pros: Around 80% of your money (sometimes more, sometimes less) is invested in the sharemarket while half is in relatively more secure fixed-interest, which can cushion any drops in share prices.
- Cons: Growth funds go up and down more than any balanced or moderate fund, so investors need to be patient and ride the market.
Aggressive KiwiSaver Funds
The FMA states someone who is generally suitable to an aggressive fund is "looking for strong longterm growth, knowing that they will stick with the fund even when the balance falls fast".
- Suggested investment term: 13+ years
- Investment mix: 90-100% in growth assets
- Examples of top-performing Aggressive funds: Booster SRI Growth, Kernel High Growth and Milford Aggressive
- Pros: Around 90% of your money (sometimes more, sometimes less) is invested in the sharemarket, so the focus is on maximising growth potential.
- Cons: Should markets drop, the fund will almost certainly decrease in value, so day to day, it is quite volatile. Investors need to be patient and ride the market.
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Your investor guide to Moderate vs Balanced vs Growth Funds is sponsored by our friends at Kernel, a platform that offers a range of investment products (e.g. balanced, high growth funds) and innovative technology to grow your wealth with ease and all in one place.
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How Everyday New Zealands are Investing their KiwiSaver - Profile Examples
To help make sense of all the options, we've provided details of typical New Zealanders and their KiwiSaver fund choice. The idea is to justify why each person has made their decision and their purpose for KiwiSaver.
The high school student:
Amy works part-time at a supermarket while doing NCEA. She signs up for KiwiSaver as she wants to contribute 3% of her wages even though she's aware her employer won't contribute until she turns 18. As she knows she'll be in KiwiSaver for life, she picks a growth fund with a track performance record. Amy is comfortable with the fact her KiwiSaver will be there later on when she needs it, first for buying a house and then at retirement, and will gain and drop in the short-term.
The university student:
Matthew is working part-time while he studies for a BCom. He joins a KiwiSaver aggressive fund because he likes taking as much risk as possible and knows he wants to travel and work overseas. Hence, he is unlikely to buy a house until his mid-30s. He finds a top-performing aggressive fund and contributes 8% of his wages while his employer adds in 3%. Matthew is happy to put more away today to help him later, whatever he decides to do.
The apprentice:
Max is 20 years old and completing a building apprenticeship. He signs up for a KiwiSaver growth fund because he wants to build his own home in a few years. He knows a growth fund will give him the best chance to maximise his investment returns and contribute to his build costs while learning his trade and becoming a Master Builder later on.
The seasonal worker:
Tim works the winters on the mountains and the summers in the national parks, exploring New Zealand in-between seasons. He knows that the costs of living and general housing unaffordability will prevent him from buying a home any time soon. Still, he wants to give himself options regardless. So he picks a growth fund that focuses on ethical investing and contributes the standard 3%.
The university graduate:
Rangi has just finished uni and is working as a junior doctor. He joins KiwiSaver at 23 and knows he wants to maximise the money he has later on for a house deposit. He decides a growth fund is best for his needs - he wants to contribute for the long term. He picks a growth fund that has the top 10-year performance. When the time comes to buy a house, he plans to move it into a conservative fund once his mortgage is approved, so his balanced is less at risk of going down.
The homeowner:
Sam has two kids and a wife who works part-time. He is just about to turn 40 and has an $800,000 mortgage. Sam has a lot of bills to pay which always seem to be increasing. He knows that KiwiSaver will be an integral part of his retirement, so he has been with his KiwiSaver growth fund for a long time. Sam has seen markets fall and his balance go up and down for 10+ years, but he knows a growth fund has the best chance of long-term wealth creation.
The full-time mother:
Leanne is a stay-at-home mother to her three children. She built up her KiwiSaver while working in healthcare and owns a home with her partner. Despite some hesitation originally about risks and potential losses, Leanne has been with the same growth fund for 10+ years and has seen it go up year after year. While she's not currently contributing to the balance, Leanne plans to get a part-time job next year, which will help her grow her KiwiSaver balance.
The business owner:
Vinod is a hard-working 55-year-old who owns a business that manufacturers building materials. Despite not receiving any benefits by way of an employers contribution, he has been a long-standing KiwiSaver member. He is with an aggressive fund and contributes 6% of his income to KiwiSaver. Vinod knows that he'll likely sell his business in the future, so he's not relying on KiwiSaver for his retirement, but as nothing is ever certain and KiwiSaver will be there no matter his financial situation when he turns 65.
Conclusion and Next Steps
- Most New Zealanders have a positive relationship with KiwiSaver. However, if you're unhappy with your fund, you can switch at any time. Thousands of New Zealanders switch funds every month, so it's not unusual or unexpected.
- The choice of KiwiSaver funds has never been wider, but not every manager has a track record. For this reason, we strongly suggest looking at Morningstar data which ranks funds every three months, in a helpful report.
- If you're looking for inspiration, our top-performing KiwiSaver funds list has you covered, as does our ethical KiwiSaver investing summary.
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Your investor guide to Moderate vs Balanced vs Growth Funds is sponsored by our friends at Kernel, a platform that offers a range of investment products (e.g. balanced, high growth funds) and innovative technology to grow your wealth with ease and all in one place.
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Related Guides
- Best Performing KiwiSaver Funds
- Ethical KiwiSaver Funds
- FMA Guide to Funds (External Website)
