Winter 2020

During the recent market downturn, you’ve probably heard financial experts speak of the importance of having your KiwiSaver money in the right fund.

But what do fund types mean, and how do you find the right one for you?

What types of funds are there?

Funds can vary between providers, but usually there are three main types:

Growth – Growth funds aim to provide you with capital growth – really making your money work hard for returns. If you’re in a higher-risk growth fund, usually with more shares in it, your money is more likely to move up and down with the highs and lows of the share market. This means you might see dramatic changes in your balance. A growth fund might suit you if you’re investing for 10 years or more.

Balanced – Balanced funds aim for steady capital growth from a mixture of shares and things like fixed interest, bonds and cash. The investment style is what the name says – a balanced approach, and would usually have fewer shares than a growth fund. A balanced fund might suit you if you’re investing for five years or more.

Conservative – Conservative funds aim to preserve your money, with a less risky mix than aggressive or growth funds. Because the bulk of their investments are usually in fixed interest, bonds and cash, you’ll generally see fewer dramatic ups and downs. A conservative fund might suit you if you’re investing for under five years, for example, if you’re close to taking out your money for a first home, or retirement.

Generally, the riskier your fund is, like a growth fund, the better chance of higher returns over the long term.

Which fund is best for me?

The most important things are:

• How long will you have your money invested for?
• How comfortable are you with investing?

Avoid changing your fund type because of ups and downs in the market. If you change your fund to a more conservative fund during a downturn, you effectively lock in the losses.

This means you won’t benefit as much from any bounce back in the market.

But there’s an exception

But if watching your money go up and down makes you very worried, you have a few options. You can try to get used to the ups and downs, and the longer you’re invested, the more comfortable you’ll probably become with the dips.

Or you might not be in the right fund for your tolerance to risk.

If you’re not sure on what type of fund is best for you, speak to your KiwiSaver provider. They’re there to help you get the most out of your KiwiSaver money, and to help you be sure you’ve got your settings correct. Or speak to an independent financial adviser.

Get used to the ups and downs

Some investors may have got a shock with the recent market downturn – for many, it’s the first time their balance has dropped sharply.

Because KiwiSaver is an investment, your balance will go up and down. This makes it different from a savings account.

But ups and downs are nothing to be afraid or worried about – they’re a normal part of your investing journey.

This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with an independent financial adviser.