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Choosing and switching funds

Choosing a fund to invest in is like choosing a pair of pants – one size doesn’t fit all.  Whether you’re investing in a KiwiSaver scheme or an investment fund, it’s important to choose a fund that fits you. 

Everyone’s different, and the best fund for you depends on your situation. And just as your pants size can change over time, so can your situation. That’s why it’s worth regularly checking that your fund still fits. 

Fortunately, you don’t have to be an investment expert to choose the right fund for you. Whether you’re choosing a fund for the first time or reviewing your existing fund choice, this article will show you how. 

How to choose the right fund

Choosing the right KiwiSaver or investment fund to put your hard-earned money in can seem complicated - but it doesn’t have to be. Basically, it comes down to two questions:

  1. How much risk are you willing to take? 
  2. What and how long are you investing for?

Risk vs reward

It’s important to understand that all investments have a level of risk. And with investing, as with most things in life, there’s a trade-off between risk and reward. 

Different funds have a different trade-off between risk and reward. For example:

  • ‘Growth’ funds invest mainly in growth assets like shares and property, which have a higher level of risk. That means they’re more likely to fluctuate in value in the short term – for example if there’s a market downturn. However history shows they usually bounce back faster when markets recover, and typically deliver higher returns over the long term.
  • ‘Conservative’ funds invest mainly in income assets like fixed interest (e.g. government bonds) and cash, which have a lower level of risk. That means their value is more stable (i.e. it doesn’t fluctuate so much), but they also typically deliver lower returns over the long term.
  • ‘Balanced’ funds invest in both growth and income assets. As the name suggests, they try to achieve a balance between risk and reward that is somewhere between growth and conservative funds. 

It’s really important to choose a fund with a level of risk that you’re comfortable with. Ask yourself which fund you’d be happier with:

  • A fund that can have big swings in value from time to time but has the potential for better returns over the long term; 
  • One that is more consistent but with lower long-term returns; 
  • Or something in the middle?

Your investment goals and timeframe

The other key thing to think about is why you’re investing, and when you’re likely to want access to your savings.     

For example:

  • If you’re investing for your retirement and you’re aged 30, a growth fund may be a good choice. Growth funds typically deliver higher returns over the long term, and with 35 years until retirement, there’s plenty of time for your fund to recover from the inevitable market swings along the way.
  • If your goal is to buy a home in the near future, a conservative fund may be a good choice. It has a lower level of risk so it’s less likely to fluctuate in value - which gives you more certainty about how much money you’ll have when you need to access it (e.g. for your house deposit).

Some KiwiSaver schemes offer options that switch funds automatically for you. For example, ANZ’s Lifetimes option moves your money automatically as you get older, into the fund that’s considered appropriate for an average person of your age. 

Need help?

Find out your risk profile

Understanding your tolerance for investment risk may help you choose the right fund for you.

Take our Risk Profile Questionnaire

To switch or not to switch?

Once you’ve chosen a fund, it makes sense to review it regularly to make sure it’s still appropriate for your needs. As we’ve seen above, for example, if you’re investing for your retirement what is appropriate for a 30 year old with a long time until retirement might not make sense for a 60 year old with just five years until they retire. Review your attitude to risk and your investment timeframe, as these may change as your situation changes. 

If you’re thinking about switching funds, it’s also important to understand why. Is it because of a change in your circumstances, or is it a reaction to market events (such as a market downturn)?  

Switching in market downturns

When investment markets are down, your fund balance can go down too. When that happens, it can be tempting to switch to a lower-risk fund (for example from a growth or balanced fund to a conservative fund). But that essentially ‘locks in’ your losses, which can be an expensive mistake. 

Higher risk funds can fall faster in market downturns, but they can recover faster too – and over the long term, history has shown they generally more than recover those losses. So by switching to a lower risk fund in a downturn, you could miss out when the market recovers. When your balance falls, it’s natural to want to take action. But if you’re investing for the long term and your risk profile and investment goals haven’t changed, doing nothing is often the best option. 

Free, personalised financial advice

If you need help choosing the right investment option for you, or putting together a plan to achieve your financial goals, talk to one of our financial advisers. They can provide free advice tailored to your individual situation.

 

Find out more

   

ANZ New Zealand Investments Limited is the issuer and manager of the ANZ KiwiSaver Scheme, ANZ Default KiwiSaver Scheme and ANZ Investment Funds. Important information is available under terms & conditions. Download the guide and product disclosure statement.