When you enrol in KiwiSaver, there are a range of different ‘funds’ you could put your money into.
Common types are, from lowest risk to highest: Defensive, Conservative, Moderate, Balanced, Growth, and Aggressive.
With most providers, including JUNO, you’ll pick one fund type for all your money. Some providers let you select more than one. The type of fund you pick will decide the way your money is invested.
If you’re in a higher-risk fund, usually with more shares, your money is more likely to move up and down with the highs and lows of the share market, meaning you might see dramatic changes in your balance.
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Choosing which fund to be in is an important decision, and will affect how much you save. The more time you have to invest, the more sensible it is to select a higher-risk fund, and the more return you should get over time. But if you need your money sooner, you’re better to choose a low-risk fund.
The fund your KiwiSaver money is in might need to change over your lifetime. But when should you change it? We asked the experts.
If you’re in a default fund
If you’ve never looked at which fund you’re in, now’s a good time to check. You could still be in a ‘default’ fund which was picked for you when you started in KiwiSaver.
Because your money was just automatically allocated to that fund, it might not be the right fund for you. Not all default funds are bad – but take a look. A different fund might suit you better.
If you’re unsure, call your KiwiSaver provider and speak to them about what could be best for you.
If you’re feeling uneasy about the markets
You probably noticed a drop in your KiwiSaver balance in November 2018, when the share market dipped.
It’s important not to panic when this happens, because your balance will go up and down over time, but over time, it should grow.
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However, if you’re feeling nervous about your balance going down, you might want to check you’re in the right fund for the level of risk you’re comfortable with.
Conservative funds are less risky than aggressive or growth funds, and you’ll generally see less dramatic ups and downs.
When you’re about to take out your money
If you’re just about to withdraw your money – to retire, or buy your first home – you’ll probably want to keep your money as safe as possible.
If the markets dropped and you lost thousands, you may have no time to build it up again.
Most experts agree that as you get closer to wanting to take out your money, you should look at changing your fund to a more conservative one, with less risk.
Talk to your KiwiSaver provider or financial adviser when you’re about 10 years out from retirement, or when you’re thinking about using your KiwiSaver cash for your first home.
When you change KiwiSaver provider
Fund types can differ, depending on the KiwiSaver provider.
One provider’s ‘balanced’ fund could be another’s ‘conservative’ fund.They could be made up the same way, just have different names.
Check the description and make-up of each fund, and speak to your KiwiSaver provider if you’re unsure – they are there to help you!
Be wary if another provider asks you to change, particularly if it’s part of another discussion (for example about a mortgage) or if there seems to be time pressure to decide. KiwiSaver is important and it shouldn’t be a hurried decision, or one made as part of another decision. The Financial Markets Authority has a guide about this.
And sometimes it’s not a good time to change your fund…
When the markets dive
If there are upsets in the market (volatility), which we’ve seen lately, your KiwiSaver balance could go down. That’s because your money’s invested on the share market, which isn’t like a regular savings account. Markets do drop as part of the investment cycle.
If you’re in a growth fund, and the markets drop, the worst thing you could do is change to a conservative fund out of panic.
That’s because you’re effectively locking in the losses you’ve made – and you probably won’t benefit from any big growth when the markets pick up again.
Your balance would have dropped dramatically at the speed of a growth fund, and will only slowly build up at the rate of a conservative fund. This means it’ll take you much longer to get the same returns you might get in a growth fund.
The exception to this is if the drop in your KiwiSaver balance has really worried you, or made you anxious.
Even if a growth fund is, on paper, the right fund for you to be in, the reality of that investment choice might be causing you a lot of stress. You might find you’re not suited to riskier investments.
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Published December 2018
Story by Claire Connell, JUNO, and Paul Gregory, Pie Funds
Paul Gregory is the Head of Investments at Pie Funds Management Limited. Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement here. 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 a financial adviser. All content is correct at time of publication date.