Our advice models are changing
The short version
- For a Neutral retirement investor, our recommended starting allocation to growth assets rises from 80% to 90%.
- For an Aggressive retirement investor, it rises from 90% to 95%.
- From age 45 we still reduce growth assets a little each year. Where you land at 65 (50%) and 80 (25%) does not change.
- On long-run return assumptions, this adds around $48,000 at 65 for a 30-year-old. This is an illustration, not a forecast.
- The trade-off is bigger swings: in a year when shares fall, a portfolio with more growth assets falls further.
- Our lower risk and first-home recommendations stay the same.
What is a glide path?
Your KiwiSaver is invested in two broad types of asset. Growth assets, mainly shares, tend to deliver higher returns over the long term but go up and down more along the way. Income assets, such as bonds and cash, are steadier but grow more slowly.
A glide path is our plan for how that mix should change as you get older. When retirement is decades away you have time to ride out the ups and downs, so it makes sense to hold mostly growth assets. As retirement gets closer, protecting what you've built matters more, so we gradually move money into income assets.
How ours works
Up to age 45 your growth allocation stays flat. From 45 through to 80 we reduce it a little every year. We don't make one big switch at a set age. We think small, consistent changes work better than large one-off moves, because you're not betting your whole balance on the market at one particular moment.
What it looks like in practice
Take a Neutral investor with $100,000 in KiwiSaver. Up to age 45 they hold 90% in growth assets on the new path. From 45, about 2% of their balance moves from growth to income assets each year.
| Age | Growth assets | In growth |
|---|---|---|
| 45 | 90% | $90,000 |
| 50 | 80% | $80,000 |
| 51 | 78% | $78,000 |
| 52 | 76% | $76,000 |
| 53 | 74% | $74,000 |
| 55 | 70% | $70,000 |
About $2,000 moves each year. Moving in small steps means a bad year in the markets affects only a small part of the change. (For simplicity, this example keeps the balance at $100,000. In reality it would keep growing with contributions and returns.)
Why we're making the change
We review our recommendations regularly, and we compare them with what other providers do both here and overseas. Our latest review found that global recommendations on retirement investing have become more growth-focused over the past few years. Some New Zealand bank providers have gone the other way and become more conservative.
Three things are behind the global shift:
- Better understanding of markets. Long-term evidence on how shares and bonds behave over decades has strengthened the case for holding more growth assets while you're young.
- The interest rate environment. Income assets have delivered relatively low returns, so relying on them early costs more over a working life.
- Retirement needs more money. People are living longer, so their savings need to last longer.
After those moves, our previous Neutral path started lower than any comparable product we looked at. None of the six international target-date managers we compared (listed under the table below) starts a member below 90% growth assets.
| Growth assets at age | 25 | 45 | 55 | 60 | 65 | 75 |
|---|---|---|---|---|---|---|
| International average | 93% | 89% | 73% | 64% | 53% | 42% |
| NZ average (excluding ANZ) | 94% | 88% | 70% | 54% | 39% | 36% |
| Kōura Neutral, previous | 80% | 80% | 65% | 58% | 50% | 33% |
| Kōura Neutral, new | 90% | 90% | 70% | 60% | 50% | 33% |
| Kōura Aggressive, previous | 90% | 90% | 75% | 68% | 60% | 43% |
| Kōura Aggressive, new | 95% | 95% | 78% | 69% | 60% | 43% |
The new path follows the international average closely until 65, and sits at the New Zealand average for young investors.
What it's worth
The extra growth allocation matters most when you're young, because that money has the longest time to compound. Nothing changes after 65.
| Neutral investor | Previous path | New path | Difference |
|---|---|---|---|
| Aged 30, projected balance at 65 | $904,587 | $952,981 | +$48,394 (5.3%) |
| Aged 45 with $120,000, extra at 65 | – | – | +$16,000 (2.8%) |
The trade-off
More growth assets means bigger swings. If shares fell 20% in a year, a portfolio with 10 extra points in growth assets would fall about 2 points further than before. We think that's the right trade for someone with decades until retirement, but it's worth knowing.
What you need to do
If you're comfortable with the change, you don't need to do anything. If you'd prefer to stay with less in growth assets, you can choose a Conservative approach or set your own mix in the Kōura app at any time. We're also happy to talk it through.
This page is general information and doesn't take your circumstances into account. If you're unsure which approach suits you, talk to a financial adviser before you decide.