What is a growth fund?
A Growth fund aims to achieve higher returns over the long term by investing primarily in growth assets like shares and property. Growth funds typically have a higher level of risk compared to conservative or balanced funds because they are heavily weighted towards assets that can be more volatile but have the potential for greater returns.
Are growth funds risky?
Different funds come with varying levels of risk and potential returns. Generally, growth funds have higher risk, but also the potential for higher returns over the long term.
On the other hand, conservative funds are lower risk but usually offer more modest returns.
There are two growth funds in the Generate KiwiSaver Scheme:
These growth funds are worth considering for your KiwiSaver plan if you are a long-term investor, and your plan to stay invested for at least seven years before you withdraw your KiwiSaver savings.
However, due to the higher-risk nature of a growth fund, they will not suit everybody. Growth funds will be more volatile than conservative funds, and returns can be positive and negative. If you are planning to use your KiwiSaver savings for your first home, or you are approaching retirement in the next few years, a more conservative plan is probably a better fund choice.
Before selecting a fund you should carefully consider your risk tolerance, investment goals, and time horizon. We recommend talking to a KiwiSaver adviser to make sure your KiwiSaver account settings are best suited to you.
Or take our Fund Selector Quiz for help finding the right fund for you.
What are the benefits of growth funds for long-term KiwiSaver investors?
1. Growth funds have the potential for higher returns:
Our Growth funds are invested in companies and sectors that we see as having strong growth potential over the long-term. This may be due to emerging technologies, changing consumer preferences, or other market dynamics. As these companies expand and increase their profits, we anticipate their stock prices may rise, which would be reflected in your KiwiSaver account returns.
However, it’s important to remember that good things take time! And while we see growth potential in these investments, we‘re realistic about the time it may take to achieve this growth.
2. Long-term KiwiSaver investors have the benefit of “time in the market”.
The longer your KiwiSaver account is invested, the more time it has to grow. However, it’s important to remember that growth isn’t always linear, and while history shows that and while funds usually trend upwards over the long-term, they can go up and down along the way. This is why Growth funds are generally suited for KiwiSaver investors who expect to stay invested for eight years or more, as any short-term dips can be offset by the long-term growth.
3. Take advantage of compounding returns to maximise your investment:
While the higher returns of growth funds are an attractive benefit - what makes them even more special is what happens when those returns are compounded.
The key benefit is the power of compounding returns: as your investment grows, it generates returns, and those returns start earning their own returns. Staying invested over many years allows you to take full advantage of this compounding effect, which can significantly increase the value of your KiwiSaver account.
4. Diversification:
Generate’s growth funds are invested in a diversified portfolio of growth-oriented companies. Diversification helps spread risk since the performance of individual stocks can be offset by the better performance of others in the portfolio.
5. Professional management:
All of Generates funds, including our growth funds, are professionally and actively managed by our team of Portfolio Managers, who actively select stocks and investments with growth potential. These fund managers conduct research and analysis to identify companies they believe will outperform the market.
Despite their potential benefits, it’s important to remember that growth funds also come with risks. Before making any changes to your fund type, we recommend talking to your adviser to make sure the fund suits your goals.