Conservative or cash KiwiSaver returns beg the question: Why are you in KiwiSaver in the first place? We review the long-term returns and find them hard to justify

By David Chaston

If you are in a conservative KiwiSaver fund, you have clearly made a choice to prioritise low risk, even lower than for the default funds. (We reviewed default fund performances here).

Low risk as a priority can be important if you cannot tolerate your fund balance decreasing due to financial market volatility.

Often that is important if you are contemplating needing the value for retirement living expenses soon. Or you have a view that the future may not be positive.

But you also have to ask, why are you even in KiwiSaver?

At this end of the risk spectrum, you need to be sure that keeping your retirement savings in these types of vehicles is better than in a bank term deposit (or a guaranteed Kiwi Bond deposit). For many of these funds, the earnings will barely have managed to keep your capital inflation adjusted - that is, zero real earnings.

Here are how these conservative KiwiSaver funds have performed since inception, and over the last three years:

You have to conclude that most of these are not very good if you use the "bank term deposit" benchmark. Those returned an average of 3.3% gross, or after-tax 2.7%. Only two conservative funds did better than putting money in the bank over the past three years (and the list may be even shorter if you just look at the past year).

It is very hard to see why anyone chose a cash or conservative fund based on track records.

Fees are paid on any managed fund, whereas they are not charged for a straight bank deposit. Paying someone to 'manage' a cash fund that returns anything less than that is hard to fathom - and that applies to all but about half a dozen of the funds listed above.

Further, you might also want to know where these fund managers have invested your KiwiSaver monies. These details are set out in each of our fund pages, and here is a summary:

That list shows why you need to do some homework on them. Just relying on their 'name' or their risk class may not reveal where the manager has the fund allocated. There is a surprisingly wide variety.

But bank funds who invest in 'cash' just put the money in their own bank term deposts - and then charge a fee for doing so!

I accept that the 10 year track record of any fund is not a certain basis for forecasting what it will be in the future. But a track record is not something that should be ignored either.

Now, compare that with the default funds.

Only you can decide your tolerance for risk. Nothing in life is truly risk-free, so understanding it better can help you target where you have your KiwiSaver invested. And a qualified professional adviser can help with that too.

If you are invested in the top conservative fund, you would be $1,194 worse off than being invested in the top default fund. Every conservative fund except the top one in our list gave a worse return than the bottom default fund. 

You have to have a very dour and pessimistic outlook to choose to invest your KiwiSaver nestegg in a conservative fund. The track record shows you have made a mistake over the past ten years. In fact, it is hard to know why you are in KiwiSaver at all if you just park your savings in a conservative or cash fund.

For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.

There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts especially if their funds are in the bottom third of the table.

The right fund type for you will depend on your tolerance for risk and importantly on you life stage.

You should move only with appropriate advice and for a substantial reason.