Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Stable Value Funds
Old 07-07-2003, 12:36 PM   #1
Dryer sheet wannabe
Join Date: May 2003
Posts: 12
Stable Value Funds

I am reading that "stable value" funds produce a higher yeild than 3-mo T-bills and perhaps better than most intermediate term bonds. On top of this, the NAV is stable at $10/share. I don't recall seeing any analysis of how this class of income fund would fit into an allocation plan. Does anyone have any information on how this type of fund would affect the maximum withdrawal rate?

rwwoods is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Stable Value Funds
Old 07-08-2003, 09:24 AM   #2
Dryer sheet wannabe
Join Date: May 2003
Posts: 12
Re: Stable Value Funds

I found a great source of information at

Included at the site are the following.

Comparison of TIPS and Stable Value

Assent Allocation and Stable Value


rwwoods is offline   Reply With Quote
Re: Stable Value Funds
Old 07-09-2003, 01:25 PM   #3
Dryer sheet aficionado
Join Date: Jun 2002
Posts: 30
Re: Stable Value Funds

I am suspicious of these things. I poked around in the web site you posted. The "stable value" is thanks to an "insurance wrapper". This means that some of the yield is given up to the entity that provides the guarantee.

Sounds to me like something cooked up for brokers to sell to bubble busted investors. These funds look to be short to intermediate bond funds with some extra fees for a stable value "guarantee" plus some more extra fees for the soothing sales pitch. Nothing will go wrong because our clever financial engineers have bought some derivatives and besides Joe's offshore insurance will bail us out if things go wrong. shows their graph of the contents of the average stable value fund. What catches my eye here is that half the portfolio is in "Synthetics" aka derivatives. Derivatives have their uses but a lot of toxic waste is created by the financial engineering process and it has to be parked somewhere. Where better to park the unsalable tranches than in a product marketed to risk adverse individuals. Think of a sausage made in southern China, guaranteed to be safe by the manufacturer.

If Vanguard were to offer one I might look closer at it. Otherwise my take is that these are going to be high fee, lower performing (because of the fees) vehicles. There is a reduced risk of moderate loss but at the risk of catastrophic loss if the sponsors aren't as clever as they think they are.

The value of any fixed rate instrument varies as interest rates change. You can pretend it isn't happening by buying CD's or individual bonds and holding to them maturity. But the bottom line is that when interest rates go back up, those holding low interest rate paper will be hurt.


baanista is offline   Reply With Quote
Re: Stable Value Funds
Old 07-09-2003, 06:51 PM   #4
Full time employment: Posting here.
Join Date: Nov 2002
Posts: 768
Re: Stable Value Funds

The comparison charts also add a 39 basis points reduction on the bond index, supposedly to simulate fees on a mutual fund. If you use a lower cost fund such as those offered by Vanguard index funds, the intermediate bond returns over time look much better than the higher cost stable value fund. Still, they are right that bonds are volatile. It is better to buy them when interest rates are comparitively high. The last good time to buy bonds was in 2000. Buying a bond mutual fund when rates are high maximizes the odds of being able to later sell shares of the fund at the same or higher prices. Rates are very low right now, and mutual fund prices are very high. Buying a bond fund now carries a high risk of taking a capital loss when you eventually sell the fund shares.
Michael is offline   Reply With Quote
Re: Stable Value Funds
Old 07-10-2003, 06:12 AM   #5
Recycles dryer sheets
Join Date: Nov 2002
Posts: 398
Re: Stable Value Funds

Baanista's comments are an excellent example of the rational skepticism that investors should apply when evaluating "financial products" that allegedly provide some unique benefit.

A basic principle of economics is that "there is no such thing as a free lunch." In the financial branch of economics, this translates into the principle that "the only way to achieve a higher probable return is to accept a greater risk of loss" (especially short-term). The flip side of this principle is that if you want "stable value," you must accept a lower rate of return. Thus, any "financial product" that promises both "stable value" and a rate of return higher than the interest rate on Treasury Bills almost certainly has hidden risks.

It takes a combination of salesmanship by "financial professionals" and gullibility by investors to buy "financial products" that don't offer the safety, liquidity, and rate of return available by simply buying U.S. Treasury securities. And as I have said repeatedly, nothing offers a better guarantee of "stable value" (better yet -- modestly-increasing value) in real, inflation-adjusted terms, than TIPs.

No, I'm really not Alan Greenspan or John Snow .

Ted is offline   Reply With Quote
Re: Stable Value Funds
Old 07-10-2003, 08:47 AM   #6
Thinks s/he gets paid by the post
Join Date: Dec 2002
Posts: 3,875
Re: Stable Value Funds

As conservative as I am, TIPs wouldn't work for me.

I ned to maximize my monthly income stream and am not
too worried about inflation. I figure I'll deal with it when and if it comes back. I may be dead by then, and most of the things we worry about never happen anyway.
MRGALT2U is offline   Reply With Quote
Re: Stable Value Funds
Old 07-10-2003, 09:29 AM   #7
Dryer sheet wannabe
Join Date: May 2003
Posts: 12
Re: Stable Value Funds

I agree that a healthy dose of skepticism is needed. Stable value funds have existed in one form or another for a reasonable period of time - they are not new. You will most likely find one offered by your 401k or similar retirement plan. They were first offered by insurance companies in the form of guaranteed income contracts (GIC) where the principle was insured. Later, mutual fund companies got in on the action by offering short to intermediate bonds that were "wrapped" by insurance companies. These funds have a history of providing an increased yield over money market funds and 3-month T-bills. The price you pay for the wrapper is about 0.25% in added fees (about 1% total). All of these funds were only offered via retirement accounts until recently, but now several are offered to IRA accounts. Below are two articles from Morningstar that point out the attributes a good fund should have.

Morningstar also reports that the SEC is investigating certain aspects of Stable Value funds.

In the end, it appears that a good Stable Value fund is a good alternative to the yields of money market funds, CDs, T-bills, and short-term bond funds. But are they a better alternative than intermediate term bond funds or TIPs? Based upon data from 3/97-12/02 provided by the Stable Value Investment Association (SVIA), I plotted the Efficient Frontier for a mix of S&P500 with Stable Value, TIPs and the Lipper Aggregate index. For that time period, TIPs was the clear winner followed by the Lipper index and with Stable Value in a clear last place. Plotting data from 1985-2002 provided by SVIA for Stable Value, 3 mo T-bills and the Lipper Intermediate index found that the index was the clear winner and with Stable Value in second place. The problem with all of this data, as pointed out by William Bernstein in his book "The Intelligent Asset Allocator", is that plotting of the Efficient Frontier will change depending upon the period taken for the data. One need several decades of data to gain a reasonable belief in the results. Unfortunately, we don't seem to have several decades of data for Stable Value funds, so the jury is still out on the long-term results against intermediate term bond funds and TIPs.


rwwoods is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
My 401k's expense ratios, Bogle, lowest-cost quartile data for stock funds? Dude FIRE and Money 19 02-07-2007 02:17 PM
Index funds beat most active funds JustCurious FIRE and Money 57 10-23-2006 12:14 PM
large stable dividend stocks vs diversified funds getoutearly FIRE and Money 79 08-25-2006 05:48 PM
Vanguard Adding More Target Retirement Funds Lusitan FIRE and Money 23 03-21-2006 07:17 PM
Low cost funds into ETFs? Olav23 FIRE and Money 26 07-06-2005 10:42 PM

» Quick Links

All times are GMT -6. The time now is 05:35 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.