How KiwiSaver Grows By The Power of Compounding?

For KiwiSaver to grow, you need to invest in growth assets. For growth assets to grow, the most important factor is time. The longer you invest, the more reliable a capital gain is achieved. This means – so long as you have the right timeframe in mind – you are more confident to own growth assets. On the contrary, the more income assets you have, the higher the chance you will fall short in retirement.

Most Kiwis underestimate how long they will be investing for their KiwiSaver. If you are in your 30s, and have purchased your first home, you are likely to be invested for 50+ years. This is because your KiwiSaver investment will need to keep growing throughout your retirement, even as you draw down on your portfolio.

KiwiSaver is designed to work over decades, not years. On average a growth portfolio returning 7-10% p.a. will double every 7 to 10 years. This does not mean after 30 years your money has tripled. Instead, over the first decade your money doubles, for example from 1× to 2×. Over the next decade your money doubles again, from 2× to 4×. And over the third decade from 4× to 8× (eight times the original amount).

Fund managers call this compounding. Compare this to income assets which can take 23 years to double.

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