How to pick the right KiwiSaver fund for you

These days there is a lot of uncertainty about the future. No matter what happens in the world, what you want is a strategy, so that you don’t have to worry about whether your KiwiSaver balance is suddenly up or down. You want to know that you’re on track to hit your goals. (That way you don’t lose sleep.) Being in the right fund gives you the peace of mind to ride things out.

You can, but for most people one is enough. Many times people put a bit in growth and a bit in conservative, and end up with an overall investment mix that is balanced. The underlying investments in the funds can be really similar – it’s just the proportion of growth assets (shares, commercial property, derivatives) that’s different. So it would be easier to keep track of a single balanced fund instead.

No ­– and this is one of the advantages of KiwiSaver. Having just one provider at a time makes it simpler to keep track of.

After you figure out your fund type and have a shortlist, at this stage you need to look at what’s inside a fund to see whether the investments are ethical and fit your values.

You could have another look at Smart Investor – it’s the first tool that enables you to see the entire list of every investment in each fund. That’s especially good if you want to geek-out on all the information, but happily there is also a simpler way.

Websites such as Mindful Money make it transparent – you can easily see whether the fund you’re thinking of choosing holds investments that are ethically challenged, and check other ethical considerations you may have as well. Check to see what’s inside your fund here.

You may have heard about the advantages of low-cost index funds and looking for a KiwiSaver equivalent. The good news is that many KiwiSaver funds invest in one or more index funds.

You’ll find them when you sort your type of fund by fees, towards the cheapest end of the market. Under many of those low-cost options, you’ll see that their top 10 investments are in underlying funds from Vanguard, for instance. There are plenty to choose from.

At Sorted, we group the funds into five categories in this way:

There’s more about these five KiwiSaver fund types in the dropdown menus here on Smart Investor.

Here are some good reasons to head down this route:

• You decide you can handle more ups and downs and you want the potentially higher returns of a riskier fund.
• Your fund’s ups and downs worry you too much and you’re thinking about moving to a lower-risk fund.
• You’re planning to withdraw funds for a first home, or getting close to retirement, and want to move to a lower-risk fund to reduce the chances that your balance will drop right before you need the money to spend.

These may be good reasons to move to a new KiwiSaver provider:

• It charges lower fees on funds with the same level of risk.
• It offers better services and clearer communications with its members.
• Your current provider consistently makes returns well below average over the long term.

Don’t choose a new KiwiSaver provider solely on high returns, which will go up and down. Base your decision on their investment options, fees and services.

These are probably bad reasons to jump ship from your current fund:

• You’ve read that another fund has been getting higher returns than your current fund. Investment returns are like waves to ride: they don’t typically stay still, and there’s no point chasing something that’s already gone.
• You’ve read or heard that some other provider’s funds have been making higher returns than your current fund – especially if it’s just short-term returns.
• A new provider has been recommended to you, but the recommendation came from someone who is rewarded if you transfer (like a bank or an adviser). Ask questions about this.
• You’re being pressured to switch over to your bank. A familiar brand – or the convenience of seeing your KiwiSaver balance all the time with your other accounts – isn’t necessarily a good reason to shift.

You won’t believe how much these add up to over time! And since they get charged to us behind the scenes each year, it’s good to take a hard look. You can forecast what you’ll pay in a given fund over the life of your KiwiSaver experience using our KiwiSaver fees calculator. How do your forecast fees compare with other funds? Could you be getting better value? The earlier you have a look, the better choice you’ll make.

It’s time to make a call. We can’t tell you which one to pick, but if you have a shortlist, those funds will undoubtedly each be different in terms of their fees, services and performance. You need to do a bit of a cost-benefit analysis between fees and services (since future performance is hard to predict). Do you think the money you'll pay is worth it? If so, that may be the one for you.