Stable value strategy (2024)

FAQs

Stable value strategy? ›

Stable value strategies are capital preservation investments (typically separate accounts or commingled vehicles) available in 401(k)s and other retirement savings plans. They seek to provide steady, positive income and principal preservation.

Stable value funds remain just that: stable. They don't grow over time, but they don't lose value either. In times of recession or stock market volatility, stable value funds are guaranteed.

Stable value is an attractive choice for investors in and near retirement as they shift from accumulating savings to thinking about how to generate retirement income and fund their retirement thanks to its attractive combination of low risk and return potential.

Stable value is a principal preservation option in a qualified retirement plan that yields bond-like returns with low market volatility. Generally, stable value exceeds inflation, which positively impacts purchasing power and provides liquidity.

A stable value fund invests in short- to intermediate-term bonds, generally with higher yields. Stable value funds are a portfolio of bonds with an insurance guarantee. Over 80% of employer-sponsored 401(k) plans offer stable funds. Stable value funds offer safety for risk-averse savers, but returns are generally low.

Stable Value® investment options generally refer to a relatively low-risk fixed income asset class available only in tax-qualified retirement savings plans such as 401(k), 403(b) and governmental 457(b) plans.

Disadvantages to Consider

However, these funds also charge annual fees that cover the cost of the insurance wrappers, which can be as high as 1% per year in some cases. Furthermore, most stable value funds prevent investors from moving their money directly into a similar investment, such as a money market or bond fund.

Stable Value Fund Advantages and Disadvantages

Stable value funds are low-risk investments that pay higher interest rates than money market funds. However, these funds also charge annual fees to cover the cost of insurance, which could be higher than the cost of other comparable bond funds.

Sometimes, bonds lose value when stocks do – especially lower-quality bonds. We saw this recently during the coronavirus-inspired stock market crash in early 2020. In short, stable value funds are generally immune from interest rate risk and correlation to stocks during market panics; hence stable value.

How often do stable value funds pay interest? ›

Interest is credited to balances on deposit in the fund on a daily basis based on the daily equivalent of the annual effective crediting rate (“daily factor”), which is applicable to such balances.

2.75% Interest is determined daily and credited to participant accounts at the end of each month, and/or when the entire balance from the Stable Value Fund is withdrawn or transferred.

Inflation Protection: Stable value funds are designed to outpace inflation by investing in fixed-income securities that generate returns higher than the rate of inflation. This ensures that your purchasing power remains intact over time.

If you don't have access to a stable-value fund, consider a high-quality bond fund instead. Many of them yield more than stable-value funds, which typically hold high-quality corporate bonds, rated single-A or better, that mature in two to five years.

Tips for researching stable value funds

Look at consistency of performance across multiple time periods, for example, 1-, 3-, 5-, 10-year and since-inception returns. Don't compare net crediting rates in a vacuum. Consider the underlying investment strategy and investment managers that support that crediting rate.

A stable value fund is designed as a low-risk investment but you could still lose money by investing in it. The primary risks of investing in the fund are: Credit risk:The chance that an issuer will fail to pay interest and principal in a timely manner.

Stable value funds are typically only offered in defined contribution plans, such as a 401(k). They are conservative investments that provide steady income with relatively little risk as your principal is guaranteed. However, less risk also means lower returns.

The core value of Stability is an invitation to cultivate peace in your body and heart no matter what arises. As you navigate challenge, move through unexpected transitions, or confront change, you trust that stability is a skill you can strengthen, like any muscle in your body.

Stable value funds are often compared to money market funds since both are similarly low-risk. Here's a look at historic returns for both. The 15-year annualized return for stable value funds as of March 2023 was 2.99%, according to the non-profit group Stable Value Investment Association (SVIA).

Whereas money market funds typically have an average maturity of 30 to 45 days, stable value funds usually have a 3.0 to 3.5-year average maturity. The ability to invest in longer-dated, higher- yielding assets has historically provided stable value funds a return advantage compared to money market funds.