Struggling to pick a KiwiSaver fund? Lost in the sea of options? You aren’t the only one.

When it comes to picking a KiwiSaver fund we are spoilt for choice. New Zealand based research firm, Canstar, states that KiwiSaver members have a choice of 38 schemes offering over 300 different fund options ranging from low risk to high-risk funds1. By having so many funds to choose from it can feel overwhelming, making your decision feel difficult. There are many factors to consider but three key factors to consider to help simplify your decision are: what is your goal? What is your investment timeframe? And what is your risk tolerance?

Goal
KiwiSaver is mainly designed for retirement. So for most people, their goal with KiwiSaver is saving for a comfortable retirement. But your KiwiSaver savings can also be used as part of a deposit for your first home purchase. Ensuring that you have a firm goal will allow you to take a targeted approach in picking a fund that is suitable for achieving your goal.

Investment Timeframe
Once you have settled on a goal the next question to ask is – what is my timeframe? Timeframe plays a very important role when it comes selecting a fund that is suitable. Those who have a shorter investment timeframe generally opt for more conservative-based funds as they may not have the time to recover from sudden market shocks. Conservative-based funds typically fall less in value during market downturns compared to growth-based funds. Investors with a shorter investment timeframe may be concerned with protecting their investment as much as possible before withdrawal, whereas those who have a longer investment timeframe may choose to opt for more growth-based funds as they have the time to ride out short-term market volatility. They may be willing to accept short-term falls in the value of their fund if the trade-off is potentially higher long-term growth.

Risk Tolerance
Risk tolerance is the level of risk you can tolerate. Risk is typically defined as the amount of potential fluctuation in the value of your investment. This level of risk sits on a scale which then can be used to find a KiwiSaver fund that corresponds to it. KiwiSaver funds generally range from aggressive (higher end of the risk scale) to conservative (lower end of the risk scale).

Making sure that you are in a fund that matches your risk tolerance is important. Aggressive funds have the potential for higher returns but are likely to experience increased fluctuations in the short-term. They are targeted to those who have a high tolerance for risk. Conservative funds generally take on less risk and hence tend to offer greater levels of stability and capital preservation often resulting in lower potential returns. These funds are targeted at those who are more risk averse.

Seeing your KiwiSaver balance rise and fall can often lead to an emotional reaction. It can be difficult to see your savings swing up and down but fluctuations in your balance are part of the investing experience. The key factor is to be able to withstand these movements. If you are likely to worry and become anxious with fluctuations in the balance, conservative based funds may be better suited for you. Whereas if you are comfortable with fluctuations and can see them through then growth orientated funds may be better suited for you.

Conclusion
This list of considerations is not exhaustive and there are other factors to consider too. These can be the expertise and performance track record of the KiwiSaver provider, fees, whether the funds are passively or actively managed, are the funds sustainably invested, is the provider of the funds easily accessible and do they provide advice.

Once you have considered all these factors it is likely that you will have a better idea which KiwiSaver provider and fund is best suited for you.

Many KiwiSaver providers like Milford offer digital advice tools that can help get you started. If you would like financial advice about the Milford KiwiSaver Plan, you can speak to one of our KiwiSaver Financial Advisers on 0800 662 348 or at [email protected]

1 https://www.canstar.co.nz/kiwisaver/new-zealands-top-10-kiwisaver-schemes