Skip to main content

KiwiSaver Conservative vs Balanced vs Growth: Risk by Time Horizon

Updated

Conservative, balanced and growth KiwiSaver funds differ in one main way: how much of your money is in growth assets (shares and listed property) rather than defensive assets (bonds and cash). That mix sets how far a fund tends to fall in a downturn and how much it has tended to return over long periods. What turns that into a different risk for different members is the time horizon: the number of years until the money is withdrawn, for a first home or from age 65.

This page sets out those facts by time horizon. It doesn’t assign a fund type to an age. For what each fund type holds in detail, see KiwiSaver fund types explained.

How the Fund Types Differ

Each fund type holds a different mix of growth assets (shares, property) and defensive assets (bonds, cash), from almost no growth assets in a cash fund to most or all of an aggressive fund; each provider sets its own mix, and a fund’s product disclosure statement (PDS) gives its target. Because the labels aren’t standardised, KiwiSaver fund types explained sets out the typical range for each type, and separate guides cover conservative, moderate, balanced, growth and aggressive funds.

Falls and Recoveries

Shares rise and fall more than bonds and cash, so a fund’s growth-asset share largely decides how it behaves in a downturn:

  • In a sharp fall (the 2008 global financial crisis, March 2020), funds with more growth assets fell further. Conservative funds fell too, but by less.
  • Conservative funds aren’t immune. They hold bonds, and bond prices fall when interest rates rise quickly, so a conservative fund can lose value even in a year when shares are not the cause.
  • Recoveries take time, and how long varies. Past falls have taken anywhere from months to several years to recover. Nothing guarantees how long the next one will take.
  • Over long periods, funds with more growth assets have historically produced higher returns than conservative funds, after fees. Lower-growth funds carry a different risk: their returns may not keep well ahead of inflation over decades.

A fall only becomes a permanent loss if units are sold before prices recover. That is why the same fall means something different to a member who needs the money next year and one who needs it in 30 years.

Why the Time Horizon Changes the Risk

Years until the money is needed What a large fall means
Many (20 or more) Time for several market cycles before withdrawal; contributions made during a fall buy units at lower prices
Some (around 5 to 15) Time for a recovery is likely but less certain; a fall near the end of the period has less time to recover
Few (under about 5) A fall shortly before withdrawal can reduce the amount taken out, with little or no time to recover

The horizon belongs to the money, not to the person’s age. A 30-year-old buying a home in two years has a short horizon for that part of the balance; a 65-year-old who plans to draw down slowly over 20 years still has a long horizon for part of theirs.

Two Horizons in One Account: First Home and Retirement

Many members use KiwiSaver for both a first home deposit and retirement, which puts two very different horizons in one balance. A fall in the year or two before a purchase reduces the deposit available, while the same fall decades before 65 has time to recover; after the purchase, what’s left in the account is retirement savings again. The KiwiSaver first home withdrawal guide covers the rules, and changing your KiwiSaver fund type covers how a switch works and how long it takes.

Moving to Lower Risk: Timing Facts

Unless you are in a lifecycle option, a KiwiSaver fund doesn’t reduce its risk as you age. Its target mix stays the same until you change fund. A few facts about the timing:

  • A move doesn’t have to be all at once. Some members move in steps (for example growth, then balanced, then conservative) over several years, or split their balance across two funds where the provider allows it.
  • Moving early and moving late both have a cost. Moving years before the money is needed means less growth-asset exposure for longer; moving late leaves a larger balance exposed to a fall close to withdrawal.
  • Moving after a fall locks in the loss. Switching to a lower-risk fund after prices have dropped sells growth assets at the lower price, and the balance then misses any recovery. KiwiSaver during a recession covers what happens to your balance in a downturn.
  • Lifecycle options do it automatically. Some schemes move members between funds by age on a fixed schedule. Lifecycle KiwiSaver funds explains how they work and their trade-offs.

Sequence-of-Returns Risk

Sequence-of-returns risk is the risk that a large market fall happens in the years just before or just after you start withdrawing. The same average return over a working life can leave very different balances depending on when the bad years fall:

  • Late in saving, the balance is at its largest, so a given percentage fall costs the most dollars, and there are few years left for a recovery.
  • Early in withdrawing, units sold during a fall are sold at low prices and are no longer there when prices recover. Withdrawing a fixed dollar amount during a fall uses up the balance faster than the same withdrawals in a rising market.

This is why the years either side of the first withdrawal attract more attention than any other stage. The KiwiSaver drawdown strategy guide covers ways of structuring withdrawals, including keeping near-term spending separate from money that stays invested.

At and After 65

At 65 your KiwiSaver balance becomes available, but there is no requirement to withdraw it or close the account: whatever you don’t withdraw stays invested in your chosen fund. The horizon after 65 depends on how quickly the money will be used, and money that will be drawn over 15 or 20 years still has a long horizon.

Default Funds

Members who were enrolled automatically, allocated to a government-appointed default provider and never chose a fund are in that provider’s balanced default fund. The KiwiSaver default fund guide covers the default providers and what changed in 2021. Switching fund type within KiwiSaver doesn’t trigger tax.

Where to check the latest data

Rates, fees and returns change often. Before deciding, check current figures yourself:

  • Sorted Smart Investor: compares fees, returns and risk levels of KiwiSaver and managed funds.
  • Disclose register: holds each fund's product disclosure statement and quarterly fund updates.
  • The provider's latest fund update: gives the fund's current fees, returns and holdings.

Frequently Asked Questions

What is the difference between a conservative, balanced and growth KiwiSaver fund? The share of growth assets. A conservative fund holds mostly bonds and cash, a growth fund mostly shares, and a balanced fund sits in between. The more growth assets a fund holds, the further it has tended to fall in a downturn and the higher its long-run returns have tended to be.

Why does time horizon matter for fund type? A fall only becomes a permanent loss if the money is withdrawn before prices recover. The more years until the money is needed, the more time a fall has to recover.

What is sequence-of-returns risk? The risk that a large fall happens in the years just before or just after you start withdrawing, when the balance is largest and there is little time to recover.

Does switching fund type trigger tax? No. Switching between KiwiSaver funds doesn’t create a tax bill; PIE tax applies to the fund’s investment income at your prescribed investor rate.

How do I switch fund types? Through your provider’s website or app, or by contacting the provider. See changing your KiwiSaver fund type.