By David Chaston
Q: Why would you choose an aggressive KiwiSaver fund? A: To grow your retirement savings the fastest.
But that aggression comes with risks.
Standard investment theory says that over the long run, taking an aggressive stance should return you the highest returns.
The long run is essentially over two business cycles - often thought to be about 25 years or so.
But KiwiSaver has only been going for 10 years.
So all we can test at this point is an interim track record.
And the 'best' aggressive fund so far has returned $12,895 more than if you had chosen the best default fund. (Or, not chosen anything and just left your money in a default fund).
Or your advantage would have been $13,606 compared to the average of the top five default funds. That is, you would have been almost +40% better off.
Or, if you just compared based on what these funds earned, the aggressive fund would have earned more than 3¼ times as much. (The contributions from yourself, your employer, and the Government is the same in either type of fund).
In anyone's language, that is significant.
And knowing this type of track record, you are better placed to assess your risk tolerance.
But the risks are real. A business cycle downturn can wreak havoc with your strategy, especially if you are the worrying kind and start thinking short term and feel you need to abandon your long-term strategy.
Still, think of it like this: If a major correction came now (and you have been in KiwiSaver since April 2008 and have had an income profile similar to our median benchmark), you could suffer a -25% drop in value and still be better off than being in a default fund - if it didn't suffer. (Of course, an economic correction could well reduce the value of a default fund too).
So the risk you might like to prioritise is how long it is until your retirement. If it is less than one or two business cycles (say 12 or so years), you should think twice about using an aggressive fund. As you get near the end of your income earning years, you won't have the same ability to start over if something untoward befalls your life.
Of course, if you won't need your KiwiSaver funds exactly on retirement, your calculations might be different again. Remember, you are likely to be a long time retired - possibly 20 years or more - so that fact too may affect your thinking.
Anyway, here is the track record of the KiwiSaver funds, which are in the highest risk category there is.
(EE, ER, Govt)
+ Cum net gains
after all tax, fees
= Ending value
in your account
last 3 yr
return % p.a.
|since April 2008||X||Y||Z|
|to June 2017||
|ANZ OneAnswer Australasian Share||A||G||AE||28,260||19,636||11.0||47,896||9.6|
|ANZ OneAnswer Australasian Property||A||A||P||28,260||19,186||10.8||47,445||9.5|
|ANZ OneAnswer International Share||A||G||IE||28,260||15,559||9.3||43,819||10.2|
|ANZ OneAnswer Growth||A||G||G||28,260||14,764||8.9||43,024||8.1|
|Fisher Funds Growth||A||A||A||28,260||13,751||8.4||42,011||7.5|
|ANZ Default Growth||A||G||G||28,260||13,503||8.3||41,762||8.2|
|ANZ OneAnswer International Property||A||A||P||28,260||13,446||8.3||41,706||6.4|
|Mercer High Growth||A||A||A||28,260||12,853||8.0||41,113||8.9|
|Kiwi Wealth Growth Fund||A||A||A||28,260||12,438||7.8||40,697||8.0|
|Fisher Funds Two Equity||A||A||IE||28,260||11,494||7.3||39,753||7.6|
|Booster High Growth||A||A||A||28,260||9,876||6.5||38,136||7.3|
|and for those funds that have not been going for the whole period ...|
|ANZ OneAnswer Sustainable Growth||A||A||IE||27,391||9,433||6.6||36,824||7.4|
|Booster Geared Growth||A||A||A||24,947||9,859||8.2||34,806||9.3|
|Milford Active Growth||A||G||AE||22,945||11,793||11.1||34,738||8.1|
|Booster International Share||A||A||IE||22,714||8,216||8.5||30,930||8.2|
|QuayStreet NZ Equity||A||A||20,163||9,620||12.2||29,784||11.7|
|Booster Socially Responsible Growth||A||A||AE||22,714||6,052||6.6||28,765||7.1|
|Booster Trans-Tasman Small Companies||A||A||AE||22,714||3,905||4.5||26,619||6.6|
|QuayStreet Australian Equity||A||A||20,163||2,549||3.9||22,712||3.9|
|Generate Focused Growth||A||A||A||15,309||2,771||7.3||18,080||7.6|
|Amanah KiwiSaver Plan||A||A||12,218||186||0.9||12,404||1.0|
|Booster KiwiSaver AC Growth Fund||A||G||A||10,958||1,217||6.6||12,175||...|
|Booster KiwiSaver Options||A||A||Mi||10,958||805||4.4||11,763||...|
|Column X is inte8.5rest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition|
|A = Aggressive, AE = Australasian Equities, G = Growth, IE = International Equities, P = Property, MI = Miscellaneous. Booster was formerly Grosvenor and QuayStreet was formerly Craigs Investment Partners|
Some readers will be interested to note that there are aggressive funds returning quite low returns. Their investment strategy hasn't worked - so far. There are even some returning less than default or conservative funds.
And here is where your contributions will be allocated, by fund.
The right fund type for you will depend on your tolerance for risk and importantly on your life stage. You should move only with appropriate advice and for a substantial reason.