Don't think you're an investor? If you’re in KiwiSaver, you are.

While we talk about putting money into your KiwiSaver scheme fund as a great way to save toward your first home or for retirement, it’s actually not a savings account. A KiwiSaver scheme is an investment scheme, where your money is used to buy ‘units’ in a fund which then holds investments like shares, bonds, or commercial property. And just like an investment in shares or in a business, KiwiSaver investments do involve some risk. 

Find out more about how your KiwiSaver scheme fund is invested and how to choose an investment approach that works for you. 

How KiwiSaver investments work

Every dollar that you contribute to your KiwiSaver account - as well as your employer’s contributions and the annual Government top-up - is invested by your KiwiSaver scheme provider on your behalf. 

Your contributions are used to buy ‘units’ in a fund. That fund then buys assets in accordance with its investment strategy, with the aim of these assets increasing in value and making you more money. The return on the investments is then reinvested for you and starts to earn its own returns - this process is called ‘compound returns’, and it’s a powerful way to grow your balance over the long term. 

As the value of the units goes up and down, so will your KiwiSaver scheme balance.

Choosing your investment strategy 

There’s no single approach to investing with KiwiSaver that works for everyone. How you choose your approach to your KiwiSaver investment will depend on your own financial situation and goals, like whether you’re planning on making a first home withdrawal soon or whether you have additional retirement savings on top of your KiwiSaver investment.  

While the actual details of which assets to buy and sell are managed behind the scenes by the scheme’s manager, KiwiSaver scheme members can choose an investment strategy that works for them and their financial goals. There are five types of funds you can choose from, ranging from the lowest risk ‘defensive’ funds to ‘aggressive’ funds, which invest in more growth assets and have a higher level of risk. 

As with all investments, there’s no reward without risk. The riskier your strategy is, the larger both your gains and falls could be. Those who choose to invest in growth or aggressive funds are most likely to see higher growth in the long term, but they’re also more exposed to potential drops in value. These people probably saw the biggest drops in their KiwiSaver balances when markets fell briefly at the start of the COVID crisis, compared with people who hold defensive, conservative, or balanced funds. 

If you’re in a growth or aggressive fund and planning on making a KiwiSaver withdrawal in the next few years, it’s worth considering switching to a lower-risk fund, to reduce your exposure to a downfall in the market. But if you’re looking more than 10 years ahead, a growth or aggressive fund might be best for you, letting you ride out bumps in the market while potentially growing your balance more.