Higher-risk funds may return more in the long run but come with the greater chance of short-term fluctuations.
I am 21 years old and have about $4000 in my KiwiSaver. Because I've been contracting for the last couple of years I haven't been making any contributions, however I am now on wages and am looking at changing my scheme.
I am with ASB and in the New Zealand Cash fund.
In filling out the form to change I see there are so many options and am unsure what is best for me. I would like to do a growth fund but I most probably will want the money for my first home, which could be anywhere between 10 to 20 years away. So I'm wondering if this would be not such a good idea.
Also, it has an option to have a plan for my savings so far and a plan for my future savings.
Even if you aren't considering a switch of either funds or providers it's good to sit down regularly and run the rule over your KiwiSaver.
Switching on the contributions after a period of not adding to the KiwiSaver pot has prompted you to think more about which fund is right, but for many of us KiwiSaver is automatically deducted from our wages and we don't really give it a second thought.
I ran your question past a couple of people to get their thoughts: Craig Haycock, ASB general manager products and strategy, one of the people behind the KiwiSaver funds you are currently investing with, and Sue Brake, senior investment strategist at the NZ Superannuation Fund, the organisation responsible for investing money on behalf of the Government to fund future superannuation payments.
First up ASB's Craig Haycock: "It's great to hear that you are thinking ahead.
"We have a useful tool on our website to help you decide which fund might best suit your needs.
"It's called an investor profiler - just five quick questions about your investment timeframe, your investing experience and how you feel about investment risk.
"If you are thinking about making a withdrawal in less than 10 years (for example, for a first home purchase) you might consider a lower-risk option - cash or conservative.
"If you have a bit longer before any planned withdrawal, then you have longer to ride out any fluctuations - the ups and downs - in the value of your investment, and you might choose a balanced or growth option.
"These funds include progressively more 'growth' assets (eg shares and property) that have the potential for higher returns but are expected to fluctuate more.
"Make sure you read the profile and objectives of each fund to work out which sounds most like you.
"As you mentioned, you can choose different fund options for your savings so far and your future savings, for example, leave the existing balance in cash and switch to the growth fund for future contributions.
"You need to be comfortable with your choice and be satisfied that your chosen fund (or funds) will meet your goals.
"If in doubt, seek financial advice," Haycock says.
And some thoughts from Sue Brake from the NZ Superannuation Fund: "This is the investor's classic dilemma - we want the returns but we are not sure we can take the risk.
"With a conservative fund there is almost no chance that you will end up with a negative return on the money you have invested, but at the same time there is also little chance that you will get a large positive return.
"As you add more growth assets into the mix you can expect a higher return on your investment.
"However, you also risk getting a really bad return, especially over short time periods.
"Signing up for a growth fund because you are young and have time to ride out periods of bad returns is a good strategy, provided that you can stay the course.
"However, what often happens is when the going gets tough, people pull their money out of growth funds - preventing the loss of more money, but locking in a bad return and missing out on the opportunity to make back the losses and more as markets recover.
"If it is highly likely that you will want to buy a house in the next five to 15 years AND you will need to access your KiwiSaver money to do so, you should choose a fund that is more conservative than if you were just using your KiwiSaver for retirement.
"Online questionnaires such as those provided by ASB and on www.sorted.org.nz are a good place to start," Brake says.
The Commission for Financial Literacy and Retirement Income recently added a new calculator to its Sorted website to help savers find the right KiwiSaver fund.
Called Fund Finder, it not only allows you to compare funds across a range of providers but there is also a great questionnaire to help point you to the right type of fund.
Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.
To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose, email@example.com.