Stable Value as annuity alternative.

[rodi]

I've worked for the same employer (sort of) for almost 2 decades... but they keep selling/buying/spinning us off... so I've had a few 401k plans as part of each corporate takeover. The employer (up until the latest sell off) has always been a bigger company - so our 401ks were always top of the line. Vanguard, then Northern Trust... and now the new (smaller) corporate overlord's plan has the Hartford as the servicer...

Up until now I've never been offered a stable value fund. Now, with this smaller, podunk, plan, we have one. And it was one of only 2 decent options in the plan. (They have ONE vanguard index fund - the other funds are all high expense ratio, underperforming crap... and this stable value fund.)

I look at it like a money market - but paying better interest. I try for an overall 60/30/10 ratio - so I have a chunk in this SV as part of 10% cash.

 

[nun]

Thank you for the discussion on this thread. I am invested in a stable value fund through my Mega Corp 401k. I always viewed it a a sleepy little corp bond fund. Now that I am getting close to ER , I am taking a closer look at it. The annuity comparison is interesting. I have read everything the company has supplied about the fund, but nowhere have I read where the principle is "insured" against loss. Is this an understood definition of a SVF?

Thanks again. I am so glad I found this forum when I did!

Stable value funds are basically bonds backed by some insurance to guarantee principal and some interest rate that will reset every so often. When I look at the rate for the SV plan in my 457 it's been trending down over the last 3 years and is now 2.66%. Still that's what you'd get in a annuity. There is more risk in a SV fund than an annuity and you don't get the advantage of the pool of investors if you live longer than expected, but the insured principal and access to principal are pretty attractive as a way to fund part of retirement.

Stable value fund - Wikipedia, the free encyclopedia

 

[padlin00]

Wouldn't it have to return at least the rate of inflation to qualify as a stable value fund? Seems like that last fund is steadily declining in real value.

I've been in a Stable Value fund for a long time, the one we have seems to follow mortgage interest rates in a delayed fashion. It's always a few years behind. Makes sense as that's what it is, insured packages of mortgages. It's currently paying 2.04%, I remember it being up over 7%.

I suppose one could deposit a large enough sum into one to cover your expected life span and use the interest as a sort of inflation protection, shouldn't be too far off. Of course you'd have to keep adjusting the payout downward it as you live longer and your life expectancy grows without the mortality credits of an annuity. In the end any leftovers could be viewed as inheritance or some such.

 

[John Galt III]

Wouldn't it have to return at least the rate of inflation to qualify as a stable value fund? Seems like that last fund is steadily declining in real value.

bUU,

The prospectus doesn't say anything about inflation. I agree 1.6 percent sucks. It was half a percent higher when it was first introduced to the 401K. I immediately put most of my money into it, since the other options weren't so hot. After about a month of tracking my Stab fund, I noticed the daily bump-up of principal was a bit less than usual, and went back into the stats, and lo and behold, the c***s*****s had dropped the interest rate by a half percent, and the fund had a new name, "Stable Value N". When I called to ask about it all they would say was they had initially set up the wrong fund, but had corrected it by replacing it with the lower interest fund.....

 

[John Galt III]

Thank you for the discussion on this thread. I am invested in a stable value fund through my Mega Corp 401k. I always viewed it a a sleepy little corp bond fund. Now that I am getting close to ER , I am taking a closer look at it. The annuity comparison is interesting. I have read everything the company has supplied about the fund, but nowhere have I read where the principle is "insured" against loss. Is this an understood definition of a SVF?

Thanks again. I am so glad I found this forum when I did!

Insured, yes, but if the insurance company defaults, the stable value fund could lose principal. The prospectus does mention something like "loss of principal is very unlikely, but possible" given x, y, z circumstances.

 

[nun]

Insured, yes, but if the insurance company defaults, the stable value fund could lose principal. The prospectus does mention something like "loss of principal is very unlikely, but possible" given x, y, z circumstances.

If the insurer goes belly up you've just lost the insurance, you still have the underlying bonds. So now you've just got a short term bond fund.

 

[steelyman]

I think there may be multiple insurers.

 

[nun]

I think there may be multiple insurers.

Yes multiple insurers and multiple bonds from multiple providers.