Maximising Returns: Investigating the Best Performing KiwiSaver Funds

KiwiSaver is a government-supported, voluntary, long-term savings scheme in New Zealand designed to help individuals prepare for retirement. Since its inception, KiwiSaver has gained considerable attention for its role in encouraging responsible financial behaviour and providing a platform for sound investment. However, not all KiwiSaver funds are created equal. The performance of these funds can vary significantly, and choosing the best-performing ones can make a substantial difference in your retirement savings.

This article aims to shed light on how to identify the best performing KiwiSaver funds and what factors contribute to their success.

Understanding KiwiSaver Fund Types

Before delving into the performance metrics, it’s crucial to understand the different types of KiwiSaver funds available. Generally, these funds are categorised based on the level of risk involved and the types of assets they invest in.

The five primary types are:

  • Defensive Funds: Low-risk, primarily invested in cash and cash equivalents.

  • Conservative Funds: Low to moderate risk, invested mainly in fixed-interest assets and some shares.

  • Balanced Funds: Moderate risk, invested in a mix of fixed-interest assets and shares.

  • Growth Funds: Moderate to high risk, primarily invested in shares.

  • Aggressive Funds: High-risk, entirely or almost entirely invested in shares.

What Makes a Fund Perform Well?

Asset Allocation

The mixture of asset classes in a fund plays a crucial role in its performance. For example, growth and aggressive funds, with their higher allocation in equities, generally offer greater returns over the long term, albeit at higher risk.

Management Expertise

The skill of fund managers in picking the right investment opportunities cannot be overlooked. Expert managers can navigate market volatility and make informed decisions that maximise returns.

Expense Ratio

Lower operational and management costs mean a larger portion of the fund’s returns go directly to the investors. Therefore, a lower expense ratio can often be a good indicator of a high-performing fund.

Market Timing

Some fund managers excel at timing the market: knowing when to buy or sell assets. While an incredibly challenging skill to master, successful market timing can significantly enhance fund performance.

Evaluating Performance Metrics

When assessing the best performing KiwiSaver funds, several key performance indicators should be considered:

  • Annualised Returns: The fund’s returns averaged over a period, usually five to ten years.

  • Volatility: Measured by standard deviation, this shows how much the returns fluctuate.

  • Sharpe Ratio: This measures risk-adjusted returns, helping you understand how much risk is involved in achieving the returns.

  • Alpha: Indicates how much the fund has outperformed its benchmark index.

Risks Involved

Remember, higher returns often come with increased risk; it's essential to balance your need for returns with your ability to endure volatility. A fund that is perfectly aligned with your risk tolerance is generally a better choice than simply going for the highest returns.

Diversification as a Strategy

One effective way to maximise returns while mitigating risk is through diversification, either by spreading your investments across different asset classes or by investing in multiple funds with varying risk profiles.

The Role of Time

Don’t underestimate the power of compounding. The longer you stay invested, the more time your money has to grow due to compound interest. This is especially true for funds that reinvest dividends and interest.

Making Informed Choices for Optimal KiwiSaver Returns

Choosing the best performing KiwiSaver funds goes beyond simply focusing on the funds with the highest past returns. It's a multi-faceted decision that requires a comprehensive understanding of various fund categories, the level of risk they carry, and how these align with your own financial objectives and risk-taking capacity. Furthermore, it's crucial to consider the finer details such as performance metrics, expense ratios, and the track record and expertise of the fund managers. These elements can significantly impact the long-term growth of your savings.

By methodically evaluating these factors, you empower yourself to make an educated choice that aims to maximise your retirement savings and aligns with your broader financial plan. Remember, the most opportune moment to start or revise your investment strategy is right now, and the most effective way to go about it is by arming yourself with the right knowledge.

Future Wealth: Your Partner in Financial Planning

At Future Wealth, our mission extends beyond financial advice; we aim to be your lifelong partners in achieving financial freedom and security. Specialising in ethical and sustainable investment planning, our team of certified financial advisors is committed to helping you make informed decisions that align with your ethical beliefs and financial goals. 

From understanding the best performing KiwiSaver funds to crafting personalised retirement plans, we provide comprehensive financial solutions designed to make your money work as hard as you do. Your journey towards a secure financial future starts here.

Matt Golding