Asset allocation is the most important investment decision you’ll make — more important than which specific fund or share you pick. Getting the growth/defensive split right determines both your expected return and your ability to sleep at night during market downturns.
A simple starting rule: subtract your age from 110 to get your growth allocation. At 30: 80% growth / 20% defensive. At 50: 60% growth / 40% defensive. At 65: 45% growth / 55% defensive. But risk tolerance matters more than age. If a 30% market fall would cause you to panic-sell, shift towards more defensive. In NZ, "growth" = global/NZ shares; "defensive" = bonds, term deposits, cash.
What Is Asset Allocation?
Asset allocation is how you divide your portfolio between:
Growth assets (higher expected return, higher volatility):
- NZ shares
- International shares
- Listed property (REITs)
Defensive assets (lower return, more stable):
- Bonds (NZ government, NZ corporate, global)
- Term deposits
- Cash
The ratio between these two categories drives:
- Expected long-run return: More growth = higher expected return
- Volatility: More growth = larger potential swings
- Maximum drawdown: How much could your portfolio fall in a bad year?
Historical Drawdowns by Allocation (NZ Data)
| Allocation | Approximate worst 12-month fall | Approximate 10-year p.a. return |
|---|---|---|
| 100% growth | −40% to −50% (e.g., GFC 2008) | 8–10% |
| 80% growth / 20% defensive | −30% to −40% | 7–9% |
| 60% growth / 40% defensive | −20% to −30% | 6–8% |
| 40% growth / 60% defensive | −10% to −20% | 5–7% |
| 20% growth / 80% defensive | −5% to −10% | 3–5% |
| 100% defensive | −2% to −5% | 2–4% |
Approximate ranges. Past performance is not a reliable indicator of future performance.
The key insight: if seeing your $100,000 portfolio drop to $55,000 would cause you to sell everything, a 100% growth portfolio is wrong for you — regardless of your age.
Age-Based Asset Allocation Rules
Traditional rule: 100 minus your age
- Age 30: 70% growth / 30% defensive
- Age 40: 60% growth / 40% defensive
- Age 50: 50% growth / 50% defensive
- Age 65: 35% growth / 65% defensive
Updated rule: 110 minus your age (reflects longer life expectancy)
- Age 30: 80% growth / 20% defensive
- Age 40: 70% growth / 30% defensive
- Age 50: 60% growth / 40% defensive
- Age 65: 45% growth / 55% defensive
Why 110? Life expectancy has increased. A 65-year-old NZ woman can expect to live to approximately 87. A 22-year investment horizon still warrants significant growth exposure.
Aggressive version: 120 minus your age
Used by investors comfortable with high volatility, often with other income sources (property, pension) providing stability.
Risk Tolerance vs Time Horizon
Age-based rules are a starting point, not a rule. Your allocation should also reflect:
Risk tolerance questions:
- If your portfolio fell 35% in a year, would you (a) do nothing, (b) invest more, or (c) sell?
- Do you have an emergency fund separate from investments? (A 6-month emergency fund allows higher risk tolerance in investments)
- Do you have other secure income in retirement (e.g., NZ Super, defined benefit pension)?
If you’d sell in a crash: Reduce growth allocation by 10–20%. A portfolio you can hold through a crash is better than a theoretically optimal portfolio you abandon at the bottom.
NZ Super: The government pension ($555.15/week after tax for a single person living alone, M tax code, as at 2026, indexed to wages) provides a defensive income floor in retirement. This can support a slightly higher growth allocation in retirement — you have a guaranteed income source regardless of market performance.
NZ-Specific Allocation Considerations
Include or exclude property?
Many NZ investors have significant property wealth (their home, or investment properties). If property represents 60–70% of net worth, a shares portfolio that’s 80% growth doesn’t mean your overall financial position is 80% growth — real property acts as a third asset class.
Consider your total wealth allocation, not just your investment portfolio allocation.
KiwiSaver fund type as part of allocation
Your KiwiSaver is part of your overall portfolio. If your KiwiSaver is in a Growth fund (~80% growth) and you also have outside-KiwiSaver investments, look at the combined allocation.
Practical NZ Portfolio Examples
These are illustrative allocations, not recommendations; the funds named are examples of products in each asset class.
Example 1: 30-year-old, growth-oriented (80% growth / 20% defensive)
| Allocation | Percentage | Example NZ fund |
|---|---|---|
| Global shares | 60% | InvestNow Foundation Series / Kernel Global 100 |
| NZ shares | 10% | Kernel NZ 20 Fund or Smart NZG |
| Australian shares | 5% | Smart AUS |
| NZ bonds | 15% | Simplicity NZ Bond Fund |
| Cash/term deposit | 10% | Bank term deposit |
Example 2: 50-year-old, balanced (60% growth / 40% defensive)
| Allocation | Percentage | Example NZ fund |
|---|---|---|
| Global shares | 40% | InvestNow Foundation Series Total World Fund |
| NZ shares | 10% | Smart NZG |
| NZ bonds | 20% | Simplicity NZ Bond Fund or Kernel NZ Bond Fund |
| International bonds | 10% | A currency-hedged international bond fund via InvestNow (from one of its 30+ external managers — Foundation Series doesn’t currently include a dedicated international/global fixed interest fund) |
| Cash/term deposits | 20% | Ladder across 3–12 months |
Example 3: 65-year-old, conservative (35% growth / 65% defensive)
| Allocation | Percentage | Example NZ fund |
|---|---|---|
| Global shares | 25% | Simplicity Growth Fund (part of) |
| NZ shares | 10% | Smart NZG |
| NZ bonds | 30% | Kernel NZ Bond Fund, Smart NZB, or a NZ bond managed fund (InvestNow doesn’t offer direct NZ government bond purchases — only managed funds and term deposits) |
| Term deposits | 25% | 6–18 month ladder |
| Cash | 10% | High-interest savings account |
One-Fund Shortcut: Let the Fund Allocate for You
If you don’t want to manage your own allocation:
| Example fund | Allocation |
|---|---|
| Simplicity Growth Fund | ~80% growth / 20% defensive |
| Simplicity Balanced Fund | ~60% growth / 40% defensive |
| Simplicity Conservative Fund | ~35% growth / 65% defensive |
| InvestNow Foundation Series Balanced/Growth/High Growth | Risk-based single allocation (not target-date) |
| Kernel High Growth | ~100% growth (no bonds) |
Higher-growth allocations are generally used for longer time horizons and higher risk tolerance; more defensive allocations for shorter horizons and retirees.
→ See: One-Fund Portfolio NZ
Rebalancing
Your allocation drifts over time as different assets grow at different rates. Rebalancing brings it back to target.
Example: You start with 80/20. After a bull market, shares are up, and your portfolio is now 90% growth / 10% defensive. You sell some shares and buy bonds to restore 80/20.
Frequency: Annual rebalancing is sufficient. Some investors rebalance when allocations drift more than 5 percentage points from target.
In NZ, selling assets creates a taxable event (if held outside a PIE fund). Consider rebalancing via new contributions rather than selling — direct new investment to underweight assets.