This article was published on 8 May 2010. Some information may be out of date.

Set and forget KiwiSaver funds a great choice for many

I’m not really interested in what happens under the bonnet of my car, as long as it goes. In much the same way many people are not interested in what happens to their KiwiSaver accounts, as long as they grow.

Like cars, though, most KiwiSaver investments need at least some maintenance. Every few years, you should check that your investment is still suitable — unless you go for what is sometimes called a “set and forget” fund.

In these funds, your risk is automatically adjusted as you get older. Since I mentioned these funds in a recent column, some readers have asked for more information. I’m happy to oblige, given that they are an excellent choice for many.

The idea behind the funds is that young people should invest largely in risky or “growth” assets such as shares and property. They are more volatile than cash and high-quality bonds, but history shows that over long periods they grow faster. The 20-year-old who invests in a risky KiwiSaver fund is likely to end up in retirement with more than twice as much as her friend in a low-risk fund.

As an investor gets older, their KiwiSaver money is gradually moved to lower risk assets. They might, for example, hold 80 per cent growth assets at age 20, 60 per cent at age 45 and just 20 per cent at age 70.

By retirement, the investor will probably be spending most of their KiwiSaver money within about ten years. If most of the money were in risky assets, there’s too big a chance those assets would be going through a slump at withdrawal time. At that stage, it’s far better to have the bulk of the money in cash and bonds.

In set and forget funds, the fund manager moves the investor’s money without their having to think about it. And overseas evidence suggests people in these funds often do better than those who set their own strategies.

Several KiwiSaver providers offer set and forget funds. They are:

  • AMP — Lifesteps
  • ANZ, ING KiwiSaver, ING SIL and The National Bank — Lifetimes Option
  • Aon — four Russell Lifepoints Funds
  • Civic — Automatic Fund
  • SuperLife — AIM Age Steps

While Staples Rodway doesn’t offer a specific fund, if you tick the box on the application form the provider will move your money to the appropriate fund as you get older.

Civic prides itself in gradually reducing your risk every month, through to age 80. Others make the adjustments less often, saying such frequent shifts aren’t necessary.

If this type of fund appeals to you, check on the providers’ websites that the details suit you. For example, you might not want to reduce risk too much as you approach retirement, especially if you are planning to spend your KiwiSaver money later in retirement. However, you could always move to another fund at that stage.

A couple of other points to note:

  • Younger people in risky funds might panic when their account balances plunge in a market downturn. And note I said “when” not “if”. There are always going to be slumps in share and property values. Promise yourself you will hang in there at such times. The markets always recover.
  • Anyone who is planning to make use of the KiwiSaver help for first home buyers shouldn’t use one of these funds, as they will be withdrawing part of their money well before retirement to put into their house deposit.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.