What Is a Stable Value Fund?
A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. The owner of a stable value fund will continue to receive the agreed-upon interest payments regardless of the state of the economy.
Stable value funds are a common option in some retirement plans such as company 401(k) plans, especially aimed at those savers nearing retirement.
Key Takeaways
- A stable value fund is an insured bond portfolio, popular with investors that have low risk tolerances.
- The insurance piece of these funds makes them nearly as safe as money market funds.
- A stable value fund is an option in many retirement plans, but often carries lower yields and higher fees.
Understanding Stable Value Fund
Stable value funds invest in high-quality government and corporate bonds, short-term, and intermediate-term. They are no different from any bond fund, except they are insured. An insurance company or bank is contractually obligated to protect the fund's investors from any loss of capital or interest.
The bonds in such a fund are sometimes called "wrapped" bonds, referring to the fact that they are insured. The insurance is commonly issued in the form of a so-called syntheticguaranteed investment certificate (GIC).
A stable value fund is inherently as safe an investment as a money market fund. Historically, such funds provide a slightly higher rate of return than money market funds.
Pros and Cons of Stable Bond Funds
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. While many other investments drop in value, the owner of a stable bond fund continues to receive the agreed-upon interest payments and never loses principal regardless of the state of the economy. The insurer must compensate the fund for any losses.
Because of the insurance, however, these funds come with extra management costs and fees, which can be a drag on the already lower yields that these investments offer due to their low risk.
How to Invest in a Stable Bond Fund
A stable value fund is often an investment option in qualified retirement plans such as 401(k) plans. A stable value fund may also be an appealing alternative to lower-yielding vehicles such as money market funds for the portion of an investor's portfolio that is used to counter market volatility. Stable value funds can provide the essential elements of balance and stability in a portfolio weighted in growth investments.
However, there is a danger if a portfolio is weighted too heavily in lower-yielding investments such as stable value funds. The investor risks being squeezed by inflation down the road. A retirement income that seems sufficient initially can gradually become inadequate as the years pass and inflation mounts.
Most professional financial advisors recommend a portfolio that is a mix of safe but low-yielding investments and risky but potentially rewarding investments, with a gradual reweighting towards safety as the investor approaches retirement age.
Investors also should check the expenses associated with stable value funds. Historically, their fees have been in the low range compared to most mutual funds. However, insurance companies have been increasing their fees due to the perceived risks of a more volatile market.
FAQs
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.
What is the risk of a stable value fund? ›
A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment. All investing is subject to risk, including the possible loss of the money you invest.
How does stable fund work? ›
How does stable value work? Stable value funds package a portfolio of high-quality bonds inside an insurance contract, or “wrap,” that guarantees both the principal and accumulated interest for those invested.
How safe is the Putnam stable value fund? ›
The fund is not insured or guaranteed by any governmental agency. Funds that invest in bonds are subject to certain risks including interest- rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds.
What is the average return of a stable value fund? ›
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). The same figure for money market funds was 0.55%.
Should I move my 401k to a stable value fund? ›
This depends on your risk tolerance, and how long you have until you retire. Stable value funds are ideal for investors nearing retirement. They are not designed for growth. Most advisors recommend allocating no more than 15% to 20% of one's assets into these funds.
Is a stable value fund safe if the market crashes? ›
A stable value fund is an insured bond portfolio, popular with investors that have low risk tolerances. The insurance piece of these funds makes them nearly as safe as money market funds.
Can you withdraw from a stable value fund? ›
Participant withdrawals and transfers are freely permitted daily according to plan provisions. Stable value funds from The Standard provide participants with full book value liquidity for benefit payments (death, disability or retirement) and transfers to other investment options.
What is the best stable value fund? ›
Source: Morningstar Separate Account/CIT Fund Database; data populated as of March 4, 2024
| Stable Value Fixed Income | 5 year gross return | 5 year net return |
|---|
| Putnam Stable Value Fund: 15bps | 2.82 | 2.66 |
| Putnam Stable Value Fund: 20bps | 2.82 | 2.61 |
| MissionSquare PLUS Fund Gross | 2.58 | 2.58 |
| Putnam Stable Value Composite | 2.81 | 2.57 |
6 more rowsMar 5, 2024
2.84% 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.
In sum, adding stable value as a fundamental component of your retirement plan, especially as you approach retirement not only provides capital preservation of your assets but in the past has also kept up with inflation while providing steady returns.
What is JP Morgan Stable Value Fund? ›
The fund seeks to provide capital preservation, liquidity, and current income at levels that are typically higher than those provided by money market funds. The strategy is primarily comprised of investment contracts called benefit responsive wraps (”wrap contracts”) that are issued by banks and insurance companies.
Does Vanguard offer a stable value fund? ›
Need more information on Vanguard stable value? Vanguard offers several stable value products that may be right for you and your capital preservation strategies. If you'd like more information about designing a retiree-friendly investment lineup for your 401(k) plan, our experts can help.
What are the rules for stable value funds? ›
The rule requires that participants transfer assets from stable value to a non-competing fund and keep them there for a minimum of 90 days before the transfer to a competing fund takes place.
Are stable value funds insured? ›
The protections of a stable value product are backed by an insurance wrapper and is structured to guarantee that participants will not lose the money they have invested, plus any accrued interest.
What is the difference between a stable value fund and an annuity? ›
The goal of a stable value fund is to provide a stable, low-risk return on your investment, while also protecting your principal. Fixed annuities, on the other hand, are insurance products that provide a guaranteed rate of return for a set period of time, usually between five and ten years.
What are the risks with Stablecoins? ›
FX risk: Lots of stablecoins are denominated in US Dollars, meaning you will be exposed to movements in the exchange rate between US Dollars and your local currency, e.g. USD:GBP for users in the UK.
What is the riskiest type of fund? ›
Equities and equity-based investments such as mutual funds, index funds and exchange-traded funds (ETFs) are risky, with prices that fluctuate on the open market each day.
Which fund has the highest risk? ›
Equity Mutual Funds as a category are considered 'High Risk' investment products.
Are stable value funds affected by interest rates? ›
The crediting rates of stable value funds generally follow market interest rate trends (as rates both rise and fall), but with a lag.
