A 0.5% return gap over 50 years can mean roughly $500,000 less at retirement.
For years, KiwiSaver has been built on a simple idea: invest steadily, reduce risk over time and arrive at retirement in a relatively safe position.
It’s a model designed to protect investors from major losses later in life.
But when you compare how this strategy is implemented in New Zealand versus the United States, a clear and uncomfortable pattern emerges.
Many KiwiSaver investors may be playing it too safe – and the long-term cost of that caution could be measured in hundreds of thousands of dollars.
In the United States, large investment providers like Vanguard, BlackRock, Schwab and J.P. Morgan dominate retirement investing through “target-date” funds. These funds automatically adjust their mix of assets – primarily shares (growth) and bonds/cash (defensive) – based on an investor’s expected retirement date.
The key feature of these funds is how long they stay growth-focused. It’s common for US target-date funds to hold around 90% in shares through an investor’s 20s, 30s and even into their 40s. Even by retirement, many still retain 30-50% in growth assets.
By contrast, many KiwiSaver funds reduce risk much earlier. Balanced funds – often used as defaults or seen as a “safe middle ground” – typically hold only 50-60% in growth assets. In some cases, investors in their 30s or 40s are already significantly dialled down from a growth-focused allocation.
This difference may appear subtle. In practice, it is anything but.
Over short periods, a 0.5% or 1% difference in returns doesn’t seem meaningful. Over decades, it becomes decisive.
Consider a simplified example: a $100,000 investment left untouched. At a 6% annual return – broadly consistent with a diversified fund that gradually reduces risk – that investment grows to about $574,000 over 30 years, and $1.84 million over 50 years.
Increase the return to 6.5% – achievable through maintaining a higher allocation to growth assets – and the same investment grows to approximately $661,000 over 30 years and $2.33 million over 50 years.
The difference after 50 years is around $500,000.
This gap is not driven by stock-picking or market-timing. It is primarily the result of one decision: how long an investor stays meaningfully exposed to growth assets.
While many KiwiSaver funds lean conservative, there are exceptions that challenge the norm.
Generate’s Stepping Stones Growth fund takes a distinctly different approach. Rather than aggressively reducing risk with age, it maintains a high allocation to growth assets – often between 75% and 90% – for much longer.
Instead of stepping down sharply, it adjusts more gradually, allowing investors to remain invested in higher-return assets well into later stages of life.
While some providers offer either high-growth funds or lifecycle-style investing, Generate is one of the few in New Zealand combining both – maintaining high exposure to growth assets while gradually reducing risk over time.
In effect, this approach more closely resembles US target-date funds – and in some cases, is even more growth-oriented.
When modelled over long timeframes, this difference becomes significant. Compared with a typical US-style automated lifecycle strategy returning around 6%, a Stepping Stones Growth-style allocation closer to 6.5% produces materially higher outcomes, particularly over 30–50 years.
In other words, New Zealand investors are not inherently disadvantaged. The structure exists locally to achieve comparable – or even better – results.
It’s just not the norm.
If the long-term case for higher growth exposure is so strong, why are so many KiwiSaver funds relatively conservative?
Part of the answer lies in behaviour.
Investment providers are acutely aware that investors do not always act rationally. Sharp market downturns can trigger panic, leading people to switch funds or withdraw at the worst possible time. By reducing volatility earlier, providers aim to keep investors comfortable and prevent costly mistakes.
There is also a regulatory and reputational dimension. Large losses – even temporary ones – can lead to complaints, scrutiny and loss of trust. A smoother, more stable return profile is often easier to defend, even if it comes at the expense of long-term growth.
In that sense, conservatism is not accidental. It is, in many cases, intentional.
None of this means that a more aggressive approach is universally better.
Higher exposure to shares means greater volatility. Investors in growth-heavy funds will experience larger swings in value, particularly during market downturns. A portfolio that delivers higher returns over decades may still suffer significant short-term losses along the way.
US target-date funds attempt to balance this by gradually reducing risk as retirement approaches. Many KiwiSaver funds go further, prioritising capital stability earlier in life.
The key issue is not whether caution is appropriate – but whether it is being applied too soon.
For a 25- or 35-year-old investor with decades ahead of them, short-term volatility is far less relevant than long-term compounding. Reducing growth exposure too early can mean missing out on the most powerful phase of wealth accumulation.
KiwiSaver defaults and balanced funds play an important role, particularly for investors who are disengaged, risk-averse or likely to react emotionally to market movements.
But for those willing to take a longer-term view, the current system may be leaving potential returns on the table.
The presence of funds like Generate’s Stepping Stones Growth highlights that the gap is not structural – it is behavioural and design-driven.
Investors who actively choose higher-growth options, and stick with them through market cycles, can close much of the gap with US-style investing outcomes.
KiwiSaver itself is not the problem. It remains a powerful and effective retirement savings system.
The issue lies in how risk is managed within it.
Right now, many New Zealand investors are arguably guided into allocations that prioritise stability over growth earlier than necessary. Over time, that trade-off can potentially become extremely expensive.
Because in long-term investing, the biggest risk is not volatility.
It’s missing out on the compounding that turns modest return differences into hundreds of thousands of dollars over time.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $9 billion on behalf of more than 190,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.