Aggressive vs. Conservative: The Price of Playing it Safe

When you join KiwiSaver, you are faced with a choice that will likely determine the size of your wealth more than any other decision you make: Which fund should I be in?

For many, the terms Aggressive and Conservative feel like a personality test. If you are a cautious person, you pick Conservative. If you are a risk-taker, you pick Aggressive.

However, treating your life savings like a personality quiz can be a mistake. The difference between these funds isn't just about how much your balance jumps around in a bad week; it is about whether you will have enough money to buy a house or retire comfortably.

The Cost of Safety

A Conservative fund is designed to be steady. It invests mostly in cash and bonds (loans to governments and banks). It is safe, but safety comes with a price tag: lower returns.

An Aggressive (or Growth) fund invests mostly in shares (ownership in companies) and commercial property. These assets are volatile, they zigzag in value, but historically, they grow significantly more than cash over the long term.

The Maths of Missing Out:

Imagine you have a KiwiSaver balance of $50,000 and you leave it there for 30 years without adding another cent.

• •In a Conservative Fund (projected ~4% return): Your balance grows to roughly $162,000.
• •In an Aggressive Fund (projected ~8% return): Your balance grows to roughly $500,000.

By playing it safe over a long timeline, you haven't just avoided risk; you have potentially cost yourself over $330,000. This is the inflation risk, the danger that your money grows so slowly that it barely keeps up with the rising cost of living.

The Sleep Test: Can You Handle the Drop?

If Aggressive funds make so much more money, why doesn't everyone choose them? Because the ride can be terrifying.

In an Aggressive fund, it is normal for your balance to drop by 10%, 20%, or even 30% during a market crash (like the 2008 Global Financial Crisis or the COVID-19 crash of 2020).

• •If you have $10,000, a 20% drop is a $2,000 loss. You might shrug that off.
• •If you have $100,000, a 20% drop is a $20,000 loss. That is the price of a small car vanishing from your screen.

This is the Sleep Test. If watching your balance drop would cause you to panic and switch funds at the bottom, you are better off in a lower-risk fund. The worst investment strategy is buying an Aggressive fund, waiting for a crash, and then switching to Conservative out of fear. That locks in your losses permanently.

The Timeline Rule: When to Switch

The general rule of financial planning is that Time heals volatility. The longer you have until you need the money, the more aggressive you can afford to be.

1. The Growth Zone (10+ Years until withdrawal)

If you are saving for retirement in your 20s, 30s, or 40s, or saving for a house you won't buy for another decade, time is on your side. Even if the market crashes tomorrow, you have years for it to recover. In this zone, being in a Conservative fund is often considered recklessly cautious because of the growth you are sacrificing.

2. The Danger Zone (0–3 Years until withdrawal)

This is where the game changes. If you are planning to buy your first home next year, or you are retiring in six months, you cannot afford a 20% drop. You don't have time for the market to recover.

In this zone, switching to a Conservative fund acts as a shield. You are effectively saying you have made your money and now want to keep it. You accept lower returns in exchange for knowing exactly how much money will be there on settlement day.

The Default Trap

For years, New Zealanders who didn't make a choice were automatically placed into Conservative funds. This changed in late 2021, and new default members are now placed into Balanced funds (a mix of aggressive and conservative assets).

However, many people who joined before 2021 are still sitting in old Conservative funds without realising it. If you haven't checked your KiwiSaver login in five years, do it today. You might be paying a high price for safety you don't need.

The Sequence of Returns Risk

For those approaching retirement (age 55–64), the strategy is often called de-risking.

Imagine you retire and the market crashes the very next week. If you are in an Aggressive fund, your savings take a hit just as you start withdrawing money to buy groceries. You are forced to sell investments while they are down, which depletes your pot much faster.

This is why many advisers suggest a glide path, gradually moving your money from Aggressive to Balanced, and then to Conservative, as you get closer to spending it. Use the KiwiSaver retirement calculator to see how fund choice changes your outcome.

Don't Set and Forget

Your life changes, and your fund should change with it. A 25-year-old saving for a deposit has a very different timeline to a 25-year-old who has just bought a home and is now saving for retirement 40 years away.

Review your fund choice once a year. If your timeline has shortened or your goals have changed, log in to your provider's portal and switch. It usually takes two minutes, costs nothing, and could add thousands to your future.