Choosing a KiwiSaver fund may seem like a small decision, but it’s one of those choices that could have a profound effect on your future. Your choice of fund and provider can make a difference, helping you buy a home, retire in comfort, or look after your family.
The thing is, this decision doesn’t need to be difficult. We’ve put together a short guide covering how to choose a KiwiSaver fund to make it easier.
Think about your goals first
Outside of some very restrictive circumstances (like significant financial hardship, life-threatening illness or moving overseas for good), there are generally two reasons you can withdraw your KiwiSaver balance:
To buy your first home (or your second in some limited circumstances).
When you reach the retirement age of 65.
Figuring out what you want to do with your KiwiSaver balance is important because it helps you work out when you’ll need to withdraw your balance. Knowing this should make choosing a fund a little easier.
Choose a type of fund
Most providers offer funds that fit roughly into the categories below. Different categories of KiwiSaver funds hold various types of assets, which make them more or less volatile, and more or less likely to generate higher returns over time.
(Note: volatile is another way to say the extent they go up and down in value.)
Fund types
Category | Volatility & potential for long-term returns | Investment horizon (expected time to invest) |
|---|---|---|
Defensive | Low | 1-3 years |
Conservative | Low-medium | 2-5 years |
Balanced | Medium | 5-7 years |
Growth, High Growth or aggressive | High | 7+ years |
Defensive and conservative funds are less volatile than growth funds, which makes them more suited to shorter-term investments. You would expect them to grow slower than your balance would in a growth fund, but there should also be less risk of a sudden or significant decrease in the value of your investment.
Balanced funds are somewhere in the middle of growth and conservative funds, in terms of both potential for long-term returns and volatility. The term balanced usually refers to a near even combination of bonds and shares in the portfolio, or simply both lending to major organisations and a slice of ownership of big companies.
Growth, High Growth and aggressive funds can offer great potential returns and tend to trend upward in value over the long term, however, their drawback is that they can also fluctuate in value more. The trick to protecting yourself against this volatility is time - by investing for longer, you increase the chance that you’ll benefit from that upward trend, instead of losing money from a dip.
As well as your investment horizon, you should also think about what you’re comfortable with and your risk appetite. If you're risk-averse, then lower risk funds like a Cash or Conservative funds might suit you better. Or if you're someone who is comfortable taking more risks, then a Growth or Aggressive fund might be a better fit.
The investment horizons above are guidelines, not rules.
Note: some KiwiSaver providers, including Kernel, let you mix KiwiSaver funds to tailor your portfolio to your appetite for risk and circumstances. For example, you could have 50% in growth and 50% in balanced - or whatever suits your appetite for risk, investment horizon, and strategy.
Here’s an example of how you might choose a type of fund:
You’re 35, and saving a deposit to buy a home in the next couple of years.
In this case, because you don’t have long to invest, it’s generally considered a good idea to consider a defensive or conservative fund. Yes, your earning potential is diminished compared to a higher-risk fund, but you’re also less likely to lose money if the market suddenly dips.
In two years, you buy your home and withdraw your KiwiSaver balance. Your next goal is retirement at the age of 65.
You’ve got around 28 years until you can withdraw your KiwiSaver balance again. That’s plenty of time, so you may want to go with a growth or aggressive fund, which should earn you a decent return over the next few decades and help set you up for retirement.
Yes, there will be ups and downs over this time, but these will be mitigated by investing for the long term.
Compare funds from different providers
Now that you have a good idea of what type of fund might be right for you, it’s time to start looking at specific KiwiSaver funds from different providers. Here are the main things you should consider when comparing:
Fees & value
Generally, fees are charged as a percentage of the total investment managed per year (i.e. if you have $10,000 in your fund and the fee is 1% you’ll be charged $100 over the course of the year). Sometimes funds also feature a success or performance fee, which is an extra fee charged if the fund achieves set performance targets.
Total fees can vary greatly between KiwiSaver providers, and can range from 0.25% p.a. up to 2.00% p.a. Broadly speaking, there are two main types of KiwiSaver funds, which sit on different ends of the cost spectrum:
Actively managed funds: managed by an investment expert, and aim to outperform a set benchmark. Typically higher fees.
Index funds (sometimes called passively managed): a basket of shares that aim to track returns by mirroring a specific index or market sector. Typically lower fees.
These fees should be viewed as part of a whole investment, never in isolation - what really matters is your return after fees are deducted. And the truth is, there is little to no evidence that higher fees result in higher returns, with much more evidence of the opposite.
In fact, according to S&P Index vs Active (SPIVA) data, 85%+ of actively managed funds fail to beat their respective index benchmark over 10 years or longer.
Note: According to Sorted, the average fee for a growth fund is 1.14%, the average fee for a balanced fund is 0.92%, and the average fee for a conservative fund is 0.84%. Fees for Kernel’s diversified funds are 0.25% (with no other fees).
ESG investing
Many investors these days are interested in not just returns, but also where their profits come from. If that’s you, it’s worth looking into environmental, social, governmental or ESG investments when choosing a KiwiSaver fund.
These investments typically hold shares in companies that consider their effect on the environment, and/or their effect on the community and staff...The funds may also exclude investing in companies that have a negative ESG effect, such as tobacco companies, weapons manufacturers, or online gambling businesses.
Returns
The main thing we all want from our KiwiSaver investment is a high return for a comfortable retirement.
For that reason, it’s worth considering the performance of KiwiSaver funds when choosing and comparing past returns (while past returns are no guarantee of future returns, they can give us a ballpark idea of what to expect).
Kernel publishes the returns of all our funds and indexes on our website to make this comparison as easy as possible. Otherwise, you can check out the following tools and reports to compare funds across the market:
The Morningstar KiwiSaver Survey: a quarterly survey that compares fees and returns of all major KiwiSaver providers in New Zealand.
Sorted’s Smart Investor tool: a nifty tool that makes it easier for you to compare fees and returns for all KiwiSaver funds.
When you use these tools, make sure you’re looking at returns after fees.
Tax efficiency
It’s worth considering the tax treatment of your KiwiSaver fund, as this could greatly affect your returns. Generally, you’ll get a better tax treatment if (like all Kernel KiwiSaver funds) the fund is New Zealand-based and has registered itself with Inland Revenue as a PIE (Portfolio Investment Entity).
Platform and service
Each KiwiSaver provider offers a different level of service and a unique online platform. It’s a good idea to have a look at what’s available from your top choices before making a final decision.
Kernel offers an online platform through which you can track your KiwiSaver investments in real time, with the ability to customise your KiwiSaver investment to suit your goals and strategy.
On top of this, our NZ-based support team is here to answer your questions and provide solutions to your problems - they’re just a call or an email away.
Within the same platform, Kernel also has the same funds at the same fee, available for non-KiwiSaver investment and other savings and investing products.
What’s next?
Once you’ve chosen a type of fund, considered all of the above factors, and compared providers, you should be ready to choose a KiwiSaver fund. Just remember, your choice isn’t permanent; it’s possible and easy to switch providers, and there is advice available if you’re still unsure.
To change provider, you simply sign up to the new provider, usually on their website, and they arrange all the transfers and redirection of contributions in approximately two weeks. To change funds, look for the “change investment strategy” or “edit plan” button or form, and this change should be processed by a provider in approximately one week.
Speak to Kernel support if you have questions about whether the Kernel KiwiSaver Plan is right for you. (Note: our team are unable to provide financial advice but they can answer questions).
Take two minutes to join the Kernel KiwiSaver plan.
