What is "Stable Value" fund in 401k ?

[Delawaredave5]

401k at w*rk has a "Stable Value" fund.

What is this ? With recent "bond concerns" - is stable value fund "toast" also ?

My understanding is these are GICs ? Guaranteed Insurance Contracts ? Not bonds.

What I hear is these are either shorter duration contracts and/or have some callable /cancellable feature in rising interest environment.

So if rates spike, these will go up, surely some lag, but the return isn't hammered like bond.

Or I'm dreaming.. Appreciate any thoughts !

 

[Ready]

https://www.investopedia.com/articles/mutualfund/09/stable-value-funds.asp

This article provides a good explanation of how a stable value fund works. In general the main advantage of a stable value fund is they maintain a $1 share price so they do not fluctuate like bond funds. The interest rates do move around but generally very slowly. They are mostly invested in short term government and corporate bonds but with insurance guarantees in place to ensure the $1 share price even if bond prices move around too quickly.

 

[pb4uski]

From the consumer perspective it is similar to a money market fund... it pays a stated rate of interest but had no interest rate risk (the risk that the fund value will decline when interest rates rise). If it pays a decent interest rate then it is a great thing to have access to.

 

[Delawaredave5]

Thanks. Sounds like short term bond fund performance. I'll look up what returning.

 

[Dtail]

A stable value fund can be a great choice as part of the fixed side of your AA.
I have 26% of my total investments in my SV fund which currently yields 3.58% net.
When one retires, they should consider leaving these funds in the 401k, instead of automatically converting over to an tIRA.

 

[Jerry1]

A stable value fund can be a great choice as part of the fixed side of your AA.
I have 26% of my total investments in my SV fund which currently yields 3.58% net.
When one retires, they should consider leaving these funds in the 401k, instead of automatically converting over to an tIRA.

Exactly what DW did. She has an old fixed value fund that pays 3%. We’re wondering when they’ll cancel it, but so far so good. They did send a letter a few years back that any withdrawals from the account had to be made proportional from all funds so that we couldn’t just take everything from the other funds and leave the fixed value fund untouched.

 

[pb4uski]

But can she rebalance to adjust for it?

 

[Jerry1]

But can she rebalance to adjust for it?

I think it’s closed for that, but doesn’t really matter. The account is about 80% in that fund.

 

[Amethyst]

We each have a tax-deferred stable value fund account, which we started contributing to during the 1990's. It is currently paying about 2%, but I think was paying 8-9% when we started. It just sits there. I would like to rebalance, but the tax bite would be big because so much of the account is earnings - and the contract says they are withdrawn first.

The tax issue is not a situation we foresaw at the outset...

 

[corn18]

I think the previous posts gave you good info on what a stable value fund is. They are not toast with current rates. Mine is sitting @ 2.2% and has been around that for the past 10 years. I moved all of my 401k into the SVF about 6 months ago. It has been paying me $32 a day, every day, since then. I am minimizing the growth in my 401k because it is all taxable. My stocks are in my Roths and taxable. I like this combo for now.

 

[Big_Hitter]

From the consumer perspective it is similar to a money market fund... it pays a stated rate of interest but had no interest rate risk (the risk that the fund value will decline when interest rates rise). If it pays a decent interest rate then it is a great thing to have access to.

if interest rates ever spike watch out - there is a reason those funds quote duration

btw I have about 40% of my tax-deferred assets in a sv fund

 

[whatnot]

DH kept his 401k and not rolled over to an IRA. Currently have 40% in FXNAX, Intermediate Bond fund.
The Fixed Income option available is paying 2%.
I am considering moving some if not all to the fixed income fund. No tax consequences since it is within the 401k. Does this make sense during the current low interest environment?

 

[Dtail]

Exactly what DW did. She has an old fixed value fund that pays 3%. We’re wondering when they’ll cancel it, but so far so good. They did send a letter a few years back that any withdrawals from the account had to be made proportional from all funds so that we couldn’t just take everything from the other funds and leave the fixed value fund untouched.

The rules for my SV fund are the same with proportionate withdrawals, but only use my 401k for the SV fund.

 

[Car-Guy]

We had an option like that at work in our 401k... Actually, still do as a retiree... At one time it was called the "Guaranteed Interest Fund"... However, they changed that name about a decade+ ago. Today they call it "Common Assets".

It's actively managed by some of the MBA's at the company and has "always" been considered a very conservative and safe investment. Safe in that it's never lost money, conservative in that it generates a pretty low rate of return. I've never seen it drop below a ~3% return rate and never seen it over ~5%. As I understand it they use the money for loans to employees, short term bonds and other fixed income investments...

For me, once I didn't want to risk my 401k money anymore in any of the equity funds, I moved it all to the common assets bucket... It brings me in at least ~50k a year even when rates are down, like now. Management fees are about $100 a year... Token fee....

 

[GenXguy]

A stable value fund can be a great choice as part of the fixed side of your AA.
I have 26% of my total investments in my SV fund which currently yields 3.58% net.
When one retires, they should consider leaving these funds in the 401k, instead of automatically converting over to an tIRA.

That's my plan. I can rebalance in and of it - I've already done that. It's been 3% for quite a few years. And there are no management fees or expenses for that particular fund.