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Old 02-19-2011, 02:45 PM   #41
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The stable value option in most plans is just a less risky alternative to a bond fund/higher yield alternative to a money market fund. Plain as that. It is an extremely conservative choice with just about zero downside.
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But that would violate the "don't invest in anything you don't understand" rule.
I agree with Brewer about SVF. Still, I've recently bumped into the issue that Kyounge mentions. Trying to figure out how your particular SFV black box works is difficult. It may come down to a matter of trust. Has the one you are able to invest in been around a good while? Is it pretty much "captive" to your employer? (Mine is totally captive - no one outside my Megacorp may invest in this particular fund.) Is it "BIG"? - Mine is well over a billion - I know that's not big as "funds" go, but for a "captive" fund like this, that's something like $25K for every man, woman, and child working or retired from my Megacorp. Do you trust your employer to make good choices in choosing such a fund for you? If you can tease out the "costs", are they reasonable? (e.g., mine is some ridiculously low number like .02% - Not sure that is the total cost as there must be some kind of "buried" costs, e.g., trading or whatever they do - see "black box" warning above.)

Back when I was too stupid to know about (or care about) looking inside the black box, I bought into my Megacorp's SFV. It did cost me a fair amount of growth potential (25+ year return has ranged from about 9% down to about 2+% now). I could have done better with that money in an index fund. But, as reported elsewhere, I got "lucky" and my Megacorp stock (one single, lousy stock) did the heavy lifting for me. I DO NOT recommend this! But, the SFV has been there in good times and bad and always just does one thing. It goes up. Maybe moderately fast or maybe dismally slowly, but it always goes up. I can check mine every single week day and it goes up from the day before. I folded nearly all of my appreciated Megacorp stock into it (near the top) and I credit my stupid moves and good luck with my ability to RE and live in Paradise too. Trust me, lucky is better than smart!

So, for a "holding area" for your money, I think you might be hard pressed to beat an SFV. Will it make you rich? Probably not. So, maybe the question should be "Are you feeling lucky? Well, are you?"
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Old 02-20-2011, 12:43 AM   #42
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I agree with Brewer about SVF. Still, I've recently bumped into the issue that Kyounge mentions. Trying to figure out how your particular SFV black box works is difficult. It may come down to a matter of trust. Has the one you are able to invest in been around a good while? Is it pretty much "captive" to your employer? (Mine is totally captive - no one outside my Megacorp may invest in this particular fund.) Is it "BIG"? - Mine is well over a billion - I know that's not big as "funds" go, but for a "captive" fund like this, that's something like $25K for every man, woman, and child working or retired from my Megacorp. Do you trust your employer to make good choices in choosing such a fund for you? If you can tease out the "costs", are they reasonable? (e.g., mine is some ridiculously low number like .02% - Not sure that is the total cost as there must be some kind of "buried" costs, e.g., trading or whatever they do - see "black box" warning above.)(snip)
The SVF available through my employee plan is the Wells Fargo fund. It has been around for a long time and has had the same manager since 1988. It's an immense fund—if I haven't misplaced my decimal point there are over twenty billion dollars in it. The expense ratio is 0.45%, and all of the holdings are rated A- or better. The fund info sheet says:
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The Stable Value Fund is an actively managed diversified portfolio of assets issued by highly rated financial institutions and corporations as well as obligations of the U.S. Government or its agencies. Examples of assets include: traditional book value contracts such as guaranteed investment contracts (GICs), bank investment contracts (BICs), GIC alternatives, corporate bonds, U.S. Treasury/ Agency Securities (for enhanced liquidity), mortgage related securities and Asset Backed Securities.
(Those last few items concern me somewhat.) I've been rereading Larry Swedroe's guide to alternate investments, in which SFV's were included among "The Good", but in some of his more recent posts on bogleheads.org, he is now sounding a note of caution about them, because it's so hard to find out what's in the black box. Maybe the manager of each fund uses some kind of proprietary trading or selection formula, like the ingredients for Coke, and that's why they are so secretive.

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So, for a "holding area" for your money, I think you might be hard pressed to beat an SFV. Will it make you rich? Probably not. So, maybe the question should be "Are you feeling lucky? Well, are you?"
I don't feel either lucky or unlucky about my finances, just cautious and risk-averse.
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Old 02-20-2011, 06:24 AM   #43
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The SVF available through my employee plan is the Wells Fargo fund. It has been around for a long time and has had the same manager since 1988. It's an immense fund—if I haven't misplaced my decimal point there are over twenty billion dollars in it. The expense ratio is 0.45%, and all of the holdings are rated A- or better. The fund info sheet says: (Those last few items concern me somewhat.)
At this point I do not imagine you will ever put money into a stable value fund, but for the sake of completeness all the stuff in that fund that is not a GIC is either basically cash/short term bonds (all these funds need a buffer of cash) or some variant on a synthetic GIC. In a traditional GIC, the fund gives cash to the insurer which issues an IOU and invests the money. The fund gets a guaranteed bond with a known interest rate and the insurer gets to keep whatever it earns over the rate on the GIC it issued. In a synthetic GIC, the fund keeps the cash, invests it itself in a generally very conservative portfolio of fixed income, and the insurer provides (for a fee) a guarantee that the value of the assets will never dip below par. Economically, a synthetic GIC is identical to a raditional GIC with the exception of the assets being retained bythe fund in the event of a synthetic GIC (his means there is less credit exposure to the insurer).

None of this stuff is particularly exciting or risky.

As for your comment on structure paper, let us not for get that even Ginnie Maes are asset backed securities.
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Old 02-20-2011, 09:22 PM   #44
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Sorry, these are only available within qualified plans (401k, etc.).
Do you know by any chance why that is?

From your description it sounds like a lot of people (e.g. those investing in CDs) would be interested in them...
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Old 02-21-2011, 07:36 AM   #45
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Do you know by any chance why that is?

From your description it sounds like a lot of people (e.g. those investing in CDs) would be interested in them...
Part of the reason these accounts work is that they do not attract hot money. If they did have a ton of hot money, the insurers would lose their shirts.

No doubt there is also some sort of historical legal reason as well.
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