Don't Get Sucked in by High 1-Year KiwiSaver Returns

When it comes to KiwiSaver, one of the most common things people look at when choosing a provider is the returns over the past year. While it’s tempting to go with what’s working right now, there can be a hidden story behind those short-term gains. Let’s break it down so you can make a more informed decision about your retirement savings.

What’s Really Going On with One-Year Returns?

At first glance, high one-year returns can seem like a great deal. Who doesn’t want their money to grow quickly? But here’s the thing: a standout year doesn't always tell the full story.

Some KiwiSaver funds may show a big spike in their one-year returns because they had a particularly bad year the year before. Let’s say a fund took a dive in performance during a market downturn, dropping significantly in value. When the market recovers, those same funds can see a huge surge in returns because they’re catching up from a low point. Essentially, they may have been playing catch-up, rather than consistently growing.

Volatility and Risk

This catch-up effect is often associated with more volatile funds. Volatile funds tend to swing up and down more dramatically, meaning they can experience big gains in some years—but also big losses in others. If a fund’s returns are highly volatile, it’s a sign that the risk level is also higher. If you're investing in a fund that swings up and down drastically, you may be more likely to see that sharp rise in returns one year after a dip, but it could also mean you’re exposing yourself to a lot of risk.

If you’re just looking at the last year’s performance, you might think it’s a sure thing. But if you zoom out and look at the longer-term picture, you’ll see that the high one-year returns are often just part of a bigger rollercoaster. The key to understanding your KiwiSaver is focusing on its long-term performance—not just the short-term fluctuations.

Why Long-Term Returns Matter More

When it comes to investing for retirement, the long game is what really counts. A solid provider with strong 5-10 year returns is likely to have a more consistent approach to investing and to have weathered various market conditions without the dramatic highs and lows that can make volatile funds look appealing in the short term.

Here’s why focusing on long-term returns is so important:

• Compounding Growth: Over time, the returns on your KiwiSaver fund don’t just add up—they build on each other. A fund that performs consistently well over a 5-10 year period can compound growth, which has a huge impact on your retirement savings in the long run. Even if you don’t see massive returns every year, steady growth over time adds up.

• Less Risk: A provider with strong long-term performance is typically less volatile, meaning your investment is less likely to take a massive hit during market downturns. While short-term swings are inevitable, a well-managed fund with a solid track record of long-term returns is less likely to experience wild swings in value.

• Your Retirement Is a Long-Term Goal: KiwiSaver is a long-term investment, designed to help you save for retirement decades down the road. By focusing on short-term returns, you risk overlooking a fund that could be a better match for your retirement goals.

Patience Pays Off

When it comes to KiwiSaver, the key takeaway is this: Don’t get swept up in the excitement of one-year returns. Sure, they can be tempting, but they don’t tell the full story. Focus on long-term performance to find a provider that will help you build wealth steadily and consistently over time. That way, you’re setting yourself up for a better, more secure retirement.

As always, we're here to help you navigate your KiwiSaver journey. Whether you're just starting out or looking to make a change, we can provide personalised advice and guide you to the right choice. Make sure you’re looking beyond the short-term noise and staying focused on your long-term financial goals!