Stable Value Funds: Everything You Need to Know | MetLife (2024)

FAQs

How much of my 401k should be in 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.

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.

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.

Stable value funds are designed to be resilient during market downturns, offering protection against losses. They typically maintain their value and continue to pay interest even when markets crash, making them a safe haven for investors.

What is the equity wash rule? The equity wash rule is the one participant-level liquidity provision related to stable value. 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.

To prohibit transfers to competing funds, a stable value fund may require an “equity wash,” which requires participants to first transfer their money to a non-competing investment option for a period of time, typically 90 days.

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.

Stable value investments' return advantage over money market funds tends to narrow or become negative when short-term rates rise, particularly with rapid increases as we have seen during this most recent rate hiking cycle; however, long-term fundamentals still favor stable value investments.

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 the Goldman Sachs stable value fund? ›

The Goldman Sachs Stable Value Collective Trust seeks to earn current income, while seeking to preserve capital and stability of principal. The Fund also seeks to maintain a stable NAV of $1.00 per Unit.

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.

Stable value funds are generally good investments for defined contribution plan participants with low risk tolerance and relatively short time horizons, like workers who are within 10 years of retirement.

Louis (12/31/1989–3/31/2023). Meanwhile, the recent performance of many stable value funds has lagged a bit. Historically, because of the longer-term nature of stable value's holdings, they have usually returned a premium over money markets: 1.33% on average annually over 10 years and just over 2% since 1990.

"Most financial planning studies suggest that the ideal contribution percentage to save for retirement is between 15% and 20% of gross income," he adds. "These contributions could be made into a 401(k) plan, 401(k) match received from an employer, IRA, Roth IRA, or taxable accounts.

401(k) Portfolio Allocations by Risk Profile

An aggressive allocation: 90% stocks, 10% bonds. A moderately aggressive allocation: 70% stocks, 30% bonds. A balanced allocation: 50% stocks, 50% bonds. A conservative allocation: 30% stocks, 80% bonds.

However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.

Standard financial advice says you should aim for three to six months' worth of essential expenses, kept in some combination of high-yield savings accounts and other liquid accounts.