Finding your fund: Understanding Balanced KiwiSaver funds

When it comes to KiwiSaver and investing, you’ve probably heard terms like conservative, balanced, and growth thrown around – but what do they actually mean?

With more than 300 KiwiSaver funds¹ to choose from , understanding the difference between them could have a big impact on your KiwiSaver balance at retirement. We’ve created this three-part series breaking down the three main fund types – conservative, balanced, and growth – to explain the unique role each fund type could play in shaping your financial future.

In part one, we looked at conservative funds, which typically focus on stability and capital preservation – aiming to avoid losses by using low-risk investments. Now, in part two, we move up the risk scale to explore balanced funds – the middle ground between stability and growth.

What you need to know about balanced funds
As the name suggests, a balanced fund spreads investments across shares and fixed income to find a happy medium between risk and return. The idea is that shares offer the potential for growth while fixed income investments, such as bonds, provide more steady returns that can help balance out the ups and downs of the share market.

A typical balanced fund invests:

• 40% to 50% in fixed income such as bonds, term deposits, and savings accounts
• 50% to 60% in shares across a range of sectors and regions

Balanced funds are popular because they combine diversification across assets, simplicity, and a mid-level risk profile (which means taking on some risk in pursuit of higher returns but mostly avoiding extreme market ups and downs).

However, balanced doesn’t mean risk-free. While bonds and shares can sometimes rise and fall at different times, there are periods when both fall together, and a balanced fund can still lose value. The word balanced refers to the mix of assets – not a guarantee of protection.

The default KiwiSaver setting now places new default members – those who have joined KiwiSaver but not chosen their own fund – into a balanced risk category, reflecting this popular middle-ground approach .

Things to consider: The pros and cons
As with any investment, it’s important to weigh up the potential benefits of balanced funds alongside the risks.

The pros of balanced funds
• Diversification across shares and fixed income creates the potential to reduce overall portfolio risk
• Offers a ready-made mix of investments, so you don’t have to choose individual assets yourself
• Potential for both growth and income in the fund over time

The cons of balanced funds
• Balanced funds can still lose value during market downturns
• More limited potential for growth over time

A balanced fund often suits investors who are willing to take on some risk for the potential of higher rewards down the track and have a medium-term timeframe – typically around five years or more. It can work for people who want to build wealth but don’t want the added risk of a growth fund, or for investors approaching retirement who still want some growth potential alongside their income.

The Milford difference
Choosing the right type of KiwiSaver fund is a key decision, and one we don’t take lightly. At Milford, our focus is on helping you align your fund choice with your financial goals and timeframe. If a balanced fund sounds close but not quite right, we can help you compare options across conservative and growth settings too.

That’s why we offer free, no-obligation KiwiSaver advice, even if you’re not a Milford client. You can also explore your options with our online digital tool*.

In part three of this series, we’ll dive into growth funds and how they aim to maximise long-term potential for investors with a higher risk tolerance.

^{¹ www.canstar.co.nz/kiwisaver/new-zealands-top-10-kiwisaver-schemes}

^{*The Milford KiwiSaver Plan digital advice tool is not suitable for persons aged 65 or older.}