When should you move your investments to something more conservative? This is a common question among KiwiSaver investors and others.

Traditional wisdom has it that you move your money to more conservative investments as you age and pass big birthdays such as 50 and 65. In a life-stages type KiwiSaver, it will do that for you automatically as you age.

In KiwiSaver, as with other investments, the three main portfolios are conservative, where most of your money is in cash, term deposits, and similar investments; balanced, which has a mix of conservative investments and growth ones such as property and shares; and growth, which is more skewed to shares and other investments that can bounce up and down in bad times. Growth ultimately should, as the name suggests, grow more over time.

I sometimes get some left-field questions such as a recent one where the person had reached a “superior age” and wondered if it was time to move from a balanced KiwiSaver to an aggressive (extra high growth) one. Most people in the same age group are thinking the opposite.

A common rule of thumb is that if you need the money within five years, then it should not be in a volatile investment such as a growth fund. People’s lives can be very different, however. One 60-year-old may know they will need every cent come age 65 and not be willing to take calculated risks with investing. Another may not need that money until age 75 and can leave it in a growth fund.

Those differences are something that Stuart Anderson, investment adviser at Craigs Investment Partners, sees all the time. He cites the example of a 90-something-year-old client who has all the money he needs and more, so keeps a good chunk of his portfolio in growth assets for the benefit of the next generation. Why keep the money in low-growth assets when it’s not going to be needed?

Craigs IP reviews clients’ portfolios annually because there are milestones people reach, not always related to age.

“There is no (fixed rule) that you should have a balanced portfolio at 65,” says Anderson. “A lot of people probably should. But you need to really understand your own circumstances.”

Advisers can help clients prepare for unexpected issues that some investors may not factor in. “For example, you retire. You’ve had a high growth portfolio, (and) you decide to keep it that way. But then two years later you have a major medical issue. You require a surgery that’s going to cost $100,000.” If that was to coincide with markets falling 20 per cent the timing could be a big issue.

When reviewing a client’s portfolio the adviser looks at the total size of their investments, age, experience in investing, health, ability to earn and general attitude to risk. If any of those factors have changed since the previous year, portfolios will be adjusted accordingly.

Anderson says something I’ve long argued and that is a conservative fund or allocation in the wrong hands can be just as dangerous as growth. If you live for decades a conservative investment will be eaten away by inflation. If, instead, you can invest a portion of the money in growth assets and still sleep at night, your investment should last as long as you.

“Going to the extremes like completely growth and completely conservative both open up risks to clients,” says Anderson. “You might feel like you’re being really risk-averse by going ultra-conservative, but it’s just a different set of risks.”

Another argument for keeping your investments growing longer is that medical advances that will help stretch our lifespans, that might mean investors need to stay in growth or balanced funds for longer.

“It’s not like my grandparents who passed away in their 70s,” says Anderson. “When they stopped working at 65. Their money just had to stretch 10 years. Our kids money might have to last them 35 or 40 years.”

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