KiwiSaver returns vary significantly depending on your fund type, provider, and market conditions. Understanding what returns are realistic for different fund types helps you choose appropriately and set reasonable expectations for your retirement savings.
Historical returns provide context, but past performance does not guarantee future results.
Returns By Fund Type
Defensive and conservative funds prioritise stability over growth. Historical returns typically range from 3 to 5 percent annually after fees, sometimes lower in recent low-interest environments.
Balanced funds mix growth and defensive assets. Historical returns typically range from 5 to 7 percent annually after fees, with moderate volatility year to year.
Growth and aggressive funds prioritise long-term returns over short-term stability. Historical returns typically range from 7 to 10 percent annually after fees, with significant year-to-year variation.
Short-Term Versus Long-Term
Short-term returns can vary dramatically. Growth funds might gain 20 percent one year and lose 15 percent the next. This volatility is normal and expected.
Long-term returns smooth out short-term volatility. Over 10 or 20 year periods, average returns typically fall within expected ranges for each fund type.
Your investment horizon should match your fund choice. Growth funds need long timeframes to recover from inevitable down years.
Comparing Provider Performance
Compare returns over at least five years, preferably ten. Short-term comparisons are misleading because they reflect market timing rather than investment skill.
Compare funds of similar types. Comparing a growth fund to a conservative fund tells you nothing useful about provider quality.
After-fee returns matter more than before-fee returns. High fees can significantly reduce the returns you actually receive.
Factors Affecting Returns
Market conditions affect all funds. Global recessions, interest rate changes, and economic cycles impact investment returns regardless of provider skill.
Asset allocation is the primary driver of returns. Growth funds hold more shares, which deliver higher long-term returns but with greater volatility.
Manager skill affects returns within fund types, but differences between good and average managers are smaller than differences between fund types.
Realistic Expectations
Do not expect consistent positive returns every year. Even well-managed funds have negative years, sometimes significantly negative.
Do not expect to beat market averages consistently. Most active managers underperform passive index funds after fees over long periods.
Do expect your fund type to perform broadly in line with similar funds over long periods. Dramatic outperformance is unusual and often unsustainable.
Impact Of Fees On Returns
A 1 percent fee difference reduces your returns by 1 percent annually. Over decades, this compounds to substantial differences in final balances.
A fund returning 7 percent with 1.5 percent fees delivers 5.5 percent net return. The same gross return with 0.5 percent fees delivers 6.5 percent net.
Focus on after-fee returns rather than headline returns when comparing providers.
Adjusting Expectations Over Time
As you approach withdrawal age, consider moving to lower-risk funds. This protects your balance from market downturns when you have less time to recover.
Your return expectations should reduce as you shift to conservative funds. This is appropriate because you are prioritising capital protection over growth.
Regular reviews ensure your fund choice remains aligned with your changing timeframe and risk tolerance.
Avoiding Common Mistakes
Do not chase recent top performers. Last years best fund often underperforms next year. Switching to pursue returns usually produces worse outcomes than staying consistent.
Do not panic during market downturns. Selling after falls locks in losses and misses subsequent recovery. Staying invested through volatility is essential for long-term returns.
Do not check your balance too frequently. Daily or weekly checking encourages emotional reactions to normal volatility. Quarterly or annual reviews are sufficient.
Planning With Realistic Assumptions
Use conservative return assumptions for planning. If growth funds historically return 7 to 10 percent, plan using 6 percent to build in margin for uncertainty.
Model multiple scenarios. Understand what your retirement looks like with strong returns and with weak returns. Plan for the latter while hoping for the former.
Adjust contributions if projections suggest you are falling short. Higher contributions are more certain than hoping for above-average returns.
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