Stable Value Funds in Rising Rate environment

[Spock]

Telling somebody they should just suck it up and increase their risk tolerance is kinda like telling a fair skinned red head that they should just lay out in the sun and get a tan. Risk isn't for everybody.


Stable Value Funds, while stable, are also made up of a stew of insurance company wrap contracts and other mystery meat that if you follow the "if you don't understand it enough to explain it to somebody else, don't buy it" rule, you likely won't buy it. Aside from the complexity I haven't seen anything to suggest they are riskier in a raising rate environment. Now that rates are leveling off the "are they good in a raising rate environment" becomes a non-issue.

 

[Koolau]

I've been rebalancing OUT of some of my SVF of late - taking most of my RMDs from it. It's my way of keeping my now less valuable equities at about 30 to 35%. SVFs never lose nominal dollars, but they are hammered by inflation (they take a long time to catch up.) YMMV

 

[DrRoy]

As I pointed out earlier in this thread, stable value funds are poor investments right now - no growth potential and below market yields.

That is true, but they did not lose last year like equities or bonds, and the yields are rising.

 

[marko]

Even though he is 26, he has noted that his Roth IRA (he's had a Roth since he was 18), invested in Wellington fund and VTI, has taken a hit in the past year and feels that investing is a losers game. .

I had never given my 401k investments a second thought. Clueless! Classic "set and forget", I had signed up on date of hire and never thought about it again.

At some point, in my mid 30s, for some reason, I thought I would check out my balance. I figured it was about $5,000. As they say, "imagine my surprise" to find over $50,000 sitting there! I was hooked!!

 

[Koolau]

As I pointed out earlier in this thread, stable value funds are poor investments right now - no growth potential and below market yields.

I notice on my SVF that not only do they take a while to adjust to higher interest rates, they take a while to come back down when interest rates drop. Bad going up - good coming down. YMMV

 

[NW-Bound]

For all of 2022, my wife's SVF paid 5.02%.

For the month of Dec 2022, it paid 0.419%, or 5.03% annualized.

Some years ago, we rolled out her 401k to an IRA, but kept about 10% in the SVF.

 

[John Galt III]

Encountered a new restriction on Stab Val FUnd. Have 2 different stab val funds in my 401K, for some reason. One is paying higher percentage than the other. Tried to move $10,000 from a bond fund into the higher paying stab fund. Got a message saying (paraphrased) 'OK, you can do this, but be aware that you will NOT be able to move ANY money out of the lower interest stab val fund for 90 days.' Whoa ! Guess I'll have to bite the 90 day bullet eventually, to get money out of low interest stab val fund.

 

[Koolau]

For all of 2022, my wife's SVF paid 5.02%.

For the month of Dec 2022, it paid 0.419%, or 5.03% annualized.

Some years ago, we rolled out her 401k to an IRA, but kept about 10% in the SVF.

5% is pretty good for a SVF. I'd hang onto it but YMMV.

 

[John Galt III]

5% is pretty good for a SVF. I'd hang onto it but YMMV.

Yeah, 5 % is very good for a stab value these days. My stable value funds have all bumped up just a bit, about two tenths of a percent, from 2.2 % to 2.4 % in the last few months. In other news, I was able to move some money out of one of my 401K stable value funds into a Fidelity brokerage link settlement fund without an equity wash rule interfering.

 

[Spock]

I just moved the remainder of my 401K in SVF to a rollover IRA.
This is your signal to remain in the SVF as SVF rates will now rise and bond yields crash.

 

[Healthy Lifestyle]

Stable value fund is a sore topic for me. We had one at work where the rate was 3% for a decade. I moved a lot into back before the pandemic when inflation was less than that. Then they suddenly changed it to around 1.3% (net with fees). And they didn't even notify anyone. I had to go into my account and discover this myself. Ironic - just as inflation skyrockets, they cut our rate! Anyway, biggest regret. I've moved some back out to stock funds when the market dropped 15% and 20% from highs.

Sorry to hear that, but the learning experience is priceless.

I hate to say that I am in a Mega Cap.401K plan with a Stable Value fund that is returning presently 1.6%. With minimal options through Merrill

 

[Healthy Lifestyle]

Just checked, it is 1.81% and still unhappy when short term T-Bills are paying 4 plus %.

 

[GenXguy]

Just checked, it is 1.81% and still unhappy when short term T-Bills are paying 4 plus %.

Ours went up to 2.15% very recently, but since they started charging 0.29% admin fees on the stable value fund balance, it's a whopping net of 1.86%. I still have most of my work retirement in the fund at this point despite moving some into mutual funds during some market downturns.

 

[Winemaker]

My understanding is that most stable value funds invest in GICs Guaranteed Investment Contracts, and are usually long term contracts with insurance companies. Back in the early 80's, rates in my stable value fund were low as compared to market rates at that time. When the contract was renegotiated, my stable value fund paid 17.75% for about 5 years then 12.75% for another 5 into the '90's.

 

[Koolau]

My understanding is that most stable value funds invest in GICs Guaranteed Investment Contracts, and are usually long term contracts with insurance companies. Back in the early 80's, rates in my stable value fund were low as compared to market rates at that time. When the contract was renegotiated, my stable value fund paid 17.75% for about 5 years then 12.75% for another 5 into the '90's.

Ah, yes, the 80s and 90s. Good time for SVFs. Now, not so much now. But I'm hanging onto mine (but raiding it for RMDs.)

 

[Dtail]

My SVF just moved up about 10 bps to 3.51%, where it will be fixed for 6 months. Still happy with it overall.

 

[Dtail]

To add that even when rates were close to zero, my SVF was yielding over 3%.

 

[Healthy Lifestyle]

My SVF just moved up about 10 bps to 3.51%, where it will be fixed for 6 months. Still happy with it overall.

I bet you are!

 

[John Galt III]

My biggest Stable Value fund has crept up to 2.9 %, from 2.2 %. I can't move it into any other fixed income investment, so I am happy for the increase. It's all good.

 

[ShokWaveRider]

Money Market is paying 4+ ....... at the moment.

 

[monte1022]

Money Market is paying 4+ ....... at the moment.

Yep..I was in Metlife and now in FXNAX to run out the clock so that I can move to my plans MM@4.13%. Metlife renewed at 2.16% for another full year. Our brokerage link setup excludes pretty much everything except stock mutual funds so that doesn't help.

 

[sengsational]

My SVF was a gold mine compared to bond funds for the last 6 months or so, but in January it's only throwing off 3.6% annualized. Not that bad.

 

[jollystomper]

Though my 401K SVF is yielding over 3%, now that various treasury instruments are over 5% and a few money markets are nearing 5%, I decided to move some of my 401K SVF money into my IRA to purchase treasuries (they are not available in my 401K). Both are with Fidelity, so fortunately I can do partial 401K->IRA rollovers as needed.