Most KiwiSaver providers let their customers choose how their balance is invested, by choosing the fund type to invest their contributions and employer contributions in.

The KiwiSaver fund types have different ways of investing money, for example different combinations of cash allocations or shares.

Here is a round-up of the KiwiSaver fund types, as listed on the Sorted website.

What are Defensive KiwiSaver funds and who are they suitable for?

Defensive KiwiSaver funds hold up to 9.9% in growth assets. This includes cash funds which have no growth assets, with 100% invested in cash and cash equivalents. Defensive funds are generally suitable for investors who have a low appetite for risk. So, if you’re put off by seeing your KiwiSaver account balance go down – although there are no guarantees this won’t happen in a defensive fund – this may be the fund for you.

However, the trade-off is that your KiwiSaver account balance almost certainly won’t grow as fast as it would in another “riskier” fund type, over the long term. In fact, balances may grow even slower than the rate of inflation in a Defensive KiwiSaver fund. So, you’d need to contribute more each year to reach a long-term savings goal that you’d expect to get in a higher risk fund.

Investment asset classes: Mainly bank deposits and other fixed-interest investments such as bonds (debt securities). Up to 10% invested in growth assets such as shares and property.

Defensive KiwiSaver fund types are generally suitable if you expect to use the funds within the next three years.

What are Conservative KiwiSaver funds and who are they suitable for?

Conservative funds hold 10% to 34.9% in growth assets. Conservative funds are generally suitable for investors who are comfortable taking on some ups and downs in value. This fund type might suit an investor seeking average long-term returns, slightly higher than in a defensive fund, but probably not as high as in a riskier fund type – such as balanced, growth or aggressive funds.

Investment asset classes: Mostly bank deposits and fixed-interest investments such as bonds. 10%-35% invested in growth assets such as shares and property.

Conservative funds are generally suited to those who plan to withdraw funds within the next two to six years.

What are Balanced KiwiSaver funds and who are they suitable for?

Balanced KiwiSaver funds are typically suited to investors who are comfortable seeing a fair degree of ups and downs in their balance in exchange for a greater long-term return than can typically be expected in a conservative or defensive fund.

Investment asset classes: 35%-62.9% in growth assets such as shares and property. Remaining proportion in more defensive assets such as cash, bank deposits, bonds, and other fixed-interest investments.

Balanced KiwiSaver funds are generally suited to those seeking mid-range long-term returns and who expect to withdraw their KiwiSaver money within the next five to 12 years.

What are Growth KiwiSaver funds and who are they suitable for?

Growth KiwiSaver funds hold a significantly larger proportion of growth assets – 63% to 89.9% to be exact. Growth funds are generally suitable for those who are looking for fairly high growth over the long term and who won’t be tempted to switch to a lower-risk fund any time they see their balance drop quite significantly – which is expected from time to time.

Investment asset classes: 63%-89.9% invested in growth assets such as shares and property. Remaining balance invested in more defensive assets such as term deposits, bonds and other fixed-interest investments. These funds have the potential for higher returns and resulting balance growth (hence the name) than options with a lower proportion of growth assets. The downside is that they also carry higher and more frequent swings in value as the value of underlying investments will go up and down with the market.

This fund type is generally suited to an investor who does not expect to withdraw their funds for at least 10 years. In other words, if you’re heading into growth fund territory, then you probably have a fairly large appetite for risk and aren’t expecting to withdraw funds in the immediate future.

What are Aggressive KiwiSaver funds and who are they suitable for?

Aggressive KiwiSaver funds are for the investment thrill seekers, with an extremely large appetite for risk. These types of KiwiSaver funds hold a large majority of the investment in growth assets – at least 90% and as high as 100%. Aggressive KiwiSaver funds are generally suitable for investors who are in it for the long haul and are looking for strong long-term growth. But it’s important to be comfortable with watching sharp drops in your balance, before you opt for this fund type.

Investment asset classes: 90%-100% invested in growth assets such as shares and property. Aims to achieve high returns over a long-term timeframe. These investments carry the potential for higher returns to grow your fund balance, but also more frequent and larger drops along the way.

Aggressive KiwiSaver funds are generally for investors who aren’t planning to withdraw funds for at least 10 years.

However, while you get some degree of choice by choosing an investment strategy, you can find yourself presented with relatively inflexible and pre-determined asset selections. This means you may either not end up getting the best returns possible on your investments or find yourself spending money in industries you’d rather not support financially. (Here’s our guide to ethical investing through KiwiSaver.)

If you want to fully customise the mix of assets your super balance is invested in, and the proportions of your balance that are invested in each asset, you may want to split your balance across fund types.

How should I allocate my KiwiSaver investments?

Obviously, the assets you choose to invest in are completely up to you, as are the amounts that you invest in each of the assets that you decide to go with.

There is no “one-size-fits-all” approach to smart investing, but there are some commonly cited concepts, such as splitting investments across fund types, known as diversifying.

Some experts believe a diversified approach is important because of the financial risk that putting all your eggs in only a few baskets can carry.

At the end of the day, your personal asset mix will depend on where you are in life, and your personal appetite for risk and what you feel comfortable investing your money in.

Content credit: Canstar website.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.