Stable Value Fund or CASH?

[volfan]

I am using Morningstar Instant X-ray to analyze our portfolio and wonder what to use for our Stable Value fund that does not have a ticker. In the past I have just used CASH$ (but in my mind cash is anything that is insured and SV is not), and once I used a Vanguard Short-term bond index fund when it was paying more than what it is now. Our SV is paying 2.35% for the 3rd quarter.



Would love opinions on how you classify your Stable Value fund in the fixed income portion of your portfolio! Thanks.

 

[brewer12345]

High grade bonds.

 

[Dtail]

I have seen it classified as cash, but to me it is clearly in the fixed income portion of my AA (separate from cash).

 

[volfan]

High grade bonds.

What ticker symbol would you use in X-ray?

 

[volfan]

I have seen it classified as cash, but to me it is clearly in the fixed income portion of my AA (separate from cash).

Yes, I agree. I do include it as fixed income when looking at stocks/bonds but I am just uncertain how to classify it when doing an analysis using a tool such as Instant X-ray.

 

[brewer12345]

What ticker symbol would you use in X-ray?

No idea what an X ray is. Stable value is just a pile of high grade bonds with a third party guarantee wrapped around it.

 

[volfan]

No idea what an X ray is. Stable value is just a pile of high grade bonds with a third party guarantee wrapped around it.

Sorry I will clarify. Morningstar Instant X-ray is a tool on their website where you can enter all of the funds and dollar amounts of your portfolio and it gives an in-depth analysis of your AA. Most people say it is more accurate than Vanguard's Portfolio Analysis tool. But you have to have a Ticker symbol or use CASH$ for cash. Just trying to figure out how to classify the SV fund when using their analysis.

 

[target2019]

Sorry I will clarify. Morningstar Instant X-ray is a tool on their website where you can enter all of the funds and dollar amounts of your portfolio and it gives an in-depth analysis of your AA. Most people say it is more accurate than Vanguard's Portfolio Analysis tool. But you have to have a Ticker symbol or use CASH$ for cash. Just trying to figure out how to classify the SV fund when using their analysis.

I use VFSTX as a proxy for Stable Value in that x-ray. It helps to use a symbol for a fund or ETF you are not invested in. Then the slice is understandable (I think).

 

[volfan]

I use VFSTX as a proxy for Stable Value in that x-ray. It helps to use a symbol for a fund or ETF you are not invested in. Then the slice is understandable (I think).

That makes sense! Thanks for the suggestion.

 

[Big_Hitter]

the benchmark for the sv fund in my 401K is FTSE Treasury Bill 3 Mon

 

[jollystomper]

My 401K describes the Stable Value Fund as "seeking to provide income similar to an intermediate-term bond fund with low volatility and to preserve principal". Its investments are in bonds.

 

[Big_Hitter]

Its investments are in bonds.

this is what mine says:

"The Trust seeks to maximize current income and maintain principal stability of $1.00 per unit by investing primarily in a diversified portfolio of guaranteed investment contracts ("GICs"), bank investment contracts ("BICs"), synthetic investment contracts ("SICs"), and/or separate account contracts ("SACs"). GICs, BICs, SICs, and SACs are types of investment contracts that are designed to provide stability and a competitive yield."

^^ that's why it's almost impossible to get into these kinds of funds outside of an institutional 401k

interestingly enough, this was also in the description:

"The most common stable value funds invest in a diversified portfolio of bonds and enter into wrapper agreements with financial companies to guarantee against fluctuations in their share prices. The safety of these funds therefore depends on both the fund’s investments as well as the financial strength of the insurance companies and banks that back the wrapper agreements. "

 

[corn18]

Thanks for posting this great question! I was asking myself the same question this morning. I moved all my fixed income $$$$ from total bond index fund to stable value in my 401k. Planning to retire next Apr and didn't want a big drop in bond funds if rates went up. The SV fund is yielding 2%. Not exactly sure how it does that as the description is cryptic but from what I can tell it is through government securities and secured capital wrapped with some sort of insurance. Regardless, I'll take it as I build my bond tent going into retirement.

Cash sucks right now, even short term bond funds. So I moved my 3 year cash money into Ally so at least I can get 1%. Might look at CD's at some point.

 

[RetireAge50]

Thanks for posting this great question! I was asking myself the same question this morning. I moved all my fixed income $$$$ from total bond index fund to stable value in my 401k. Planning to retire next Apr and didn't want a big drop in bond funds if rates went up. The SV fund is yielding 2%. Not exactly sure how it does that as the description is cryptic but from what I can tell it is through government securities and secured capital wrapped with some sort of insurance. Regardless, I'll take it as I build my bond tent going into retirement.

Cash sucks right now, even short term bond funds. So I moved my 3 year cash money into Ally so at least I can get 1%. Might look at CD's at some point.

Why not put your 3 year cash money into the stable value fund also? For example buy stocks with your Ally money and at the same time sell stocks in 401k and buy stable value. When you want to spend money do the opposite.

 

[corn18]

Why not put your 3 year cash money into the stable value fund also? For example buy stocks with your Ally money and at the same time sell stocks in 401k and buy stable value. When you want to spend money do the opposite.

My 401k is all stable value, so nothing to swap.

 

[jazz4cash]

My 401k research tab shows a benchmark for each fund. The SVF benchmark is the FTSE 3 mo treasury.

 

[target2019]

Stable Value Funds(SVF) are all different to some extent. When I settled on VGSTX the NAV was pretty stable, and the yield was similar to my SVF. But things have changed and you'll see over longer periods your proxy does not look like your SVF. It's a question that comes up often.

Reference for more understanding: https://www.morningstar.com/articles/710877/unpacking-stable-value-funds

 

[volfan]

Target 2019, thanks for the link.

Supposedly before we opened our deferred compensation accounts, they offered an 84 month fixed rate certificate. They have closed that option, which I suppose was insured like a CD, so the safest investment now is stable value but it is low risk not no risk.

I find it frustrating that a traditional IRA can be invested in an insured CD, but that any deferred income through our work doesn’t have a completely safe option. So if you don’t qualify for the tIRA, you have to assume some risk with your 401k because SV is all that is offered.

I have no idea what the worst case scenario is with a SV fund , in terms of percentage lost. Anyone have an idea?

I guess at retirement you could choose to roll it over into an IRA CD, but with rates so low, is that even a good move? Maybe yes if you just need the security and no return. Maybe no if you are in need of some growth.

 

[target2019]

volfan,
This is the SVF I hold in 401k:
https://profile.morningstar.com/profile/HTMLPage.asp?ClientCode=005&ID=SPUSA04JW6&View=snapshot
It's a smooth ride, I think, but they're all different in some respect. Since it's a major holding, I have to get a better idea of where I'll go with it in a Rollover-IRA after acting on a transition.

 

[volfan]

My SV says it invests in government backed securities and high grade corporate bonds. It also mentions something about being at the mercy of the insurance company’s ability to pay, which I guess is for the wrapped contracts.