Whats the best KiwiSaver fund for me?

Why it matters

It seems like most Kiwis have no idea about what is the best KiwiSaver fund they should invest in. This is a huge problem as being in the wrong fund, especially if you are under 40, could cost you hundreds of thousands of dollars by the time you retire.

When I first joined KiwiSaver in 2007 I had no idea what fund I should pick. I’m pretty sure I just ended up in one of the default funds, which I eventually transferred out of so I could see my KiwiSaver balance on my internet banking account!

I wrote about in the last post, KiwiSaver is a great investment, offering amazing returns for the first $1042 invested. However, all the money that you have invested is not just sitting in a bank somewhere, but is invested in profitable assets making you even more money.

What is the best KiwiSaver fund for me?

KiwiSaver has different types of funds which vary based on risk and return. From low risk, low return (Defensive or conservative) through to higher risk, higher return (Growth and Aggressive).

Growth is the best KiwiSaver fund for young New Zealanders
These are the main categories of KiwiSaver funds. It should be obvious which is the best investment choice for younger Kiwi’s.

Most New Zealanders are far too conservative with their KiwiSaver because, as humans, we overestimate the impact or likelihood of loss. Behavioural economists call this loss aversion. Because I am under 30, I have changed to a Growth (or Aggressive) fund.

If you are within 12 years of retirement sorted.org.nz suggest that you look at changing to a balanced fund.

Here’s my reasoning for why I think that a Growth fund is the best KiwiSaver fund for me. I am unable to withdraw any money from my KiwiSaver for the next 39 years. Do you really think in 39 years I would be worried about the minor (or major) fluctuations that occur day-to-day? Of course not. I want my retirement money invested in productive assets, not sitting in a bank account losing value to inflation!

Remember, it doesn’t matter if the KiwiSaver balance temporarily drops in value as long as you don’t change fund or provider. This is called ‘locking in the losses’. It will rebound, just like the stock market has after every other crash, depression, recession, glitch, bug, war, and crisis in the last hundred years. If it doesn’t, then we have bigger problems that our KiwiSaver balances to worry about!

Comparing KiwiSaver funds

Let me prove that a growth fund is the best KiwiSaver fund for me.

Lets assume a growth fund returns 7% on average while a conservative fund averages 3%. Sure, there are some good years and some bad years, but it is likely to average out. These figures are slightly less than the averages (based on the previous 5 years) posted on sorted.org.nz.

All fees are based on averages for that category of funds.

Growth funds far outperform conservative funds, especially over long periods of time. See below for more details.

By choosing a growth fund I am potentially doubling the amount of money I will have when I retire. Because of the way compounding interest works, a balanced fund will end up much closer to a conservative fund than the growth fund.

How much should I contribute?

The answer, for me, comes down to one simple question:

Are you good at saving/investing AND need to withdraw any of this money before you are 65?

If yes, contribute the minimum 3% and invest the remainder into other investments (such as index funds, rental properties) – this is what I do because I want to retire earlier than 65.

If no, contribute 8%. It is psychologically easier to save before you get paid into your account, and more importantly, you can’t dip into your KiwiSaver every time a new product catches your eye (although it is possible to withdraw your KiwiSaver as a first home buyer)

So there you have it. The best KiwiSaver fund for me is a high Growth fund, contributing 3%, or 8% and investing the difference.

Money made simple with the Morepork Report.


Maths behind the graphs

All the following graphs are based on the following assumptions:

Conservative Fund: 0.85% annual fee + $27.25 account fee. 3% annual return.
Growth Fund: 1.3% annual fee + $33.92 account fee. 7% annual return.

These annual and account fees are from the averages listed on sorted.org.nz.

Personal contributions of $1042.86 per year.
Employer contributions of $1042.86 – tax per year.
Government tax credit of $521.43 per year.

I have ignored other taxes and inflation in these models.



  1. I joined a growth fund from the get go, not intending to use KS for a house. Fastforward some years and it becomes clear using some of my KS money is the only way I’ll be able to afford a house. :S But the market was on a roll during those years and luckily my growth fund had done really well. Those returns helped boost my deposit, essentially. I graduated into the recession but the stockmarket has been kind to me since, at least.

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