Originally Posted by jags86
Sorry to highjack the thread but I had a question about stable value funds.
My 401k offers a stable value fund with a 3% fixed rate of return. Would this be a suitable alternative to holding bonds considering interest rates are so low?
Generally, yes and many posters here are using stable value funds as all or part of their bond allocation to mitigate interest rate risk. As 2B wrote, there are a few rare cases over the last 20 years of companies that went bankrupt that the loss in principal was caused by the employer's bankruptcy and the insurer was not obligated to pay under their contract with the plan... Lehman Bros and Chrysler were named in a link earlier in this thread, but in those cases the loss to the participants were relatively small (1-3% IIRC), so there is a small amount of credit risk.