Should I invest in a stable value fund?

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joer1212
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Should I invest in a stable value fund?

Post by joer1212 »

My company offers a "stable value fund" in its 401k and 457b plans. Should I add this to the fixed income portion of my portfolio?

I'm a little concerned that stable value funds typically don't outpace inflation. Aside from cash, shouldn't every fund in one's portfolio have a real return over inflation?

I had decided against investing in stable value until I recently read The Only Guide To Alternative Investments You'll Ever Need by Larry E. Swedroe and Jared Kizer. They claim that a stable value fund offers great diversification benefits when added to a portfolio of stocks and bonds, decreasing volatility, and therefore, returns for the entire portfolio.
I am a little skeptical because these authors are the same guys who also claim that commodities are a good thing for a portfolio, so I would like a second opinion on this to get some kind of consensus, if possible.

Here are the facts on the MTA Stable Value Fund I'm considering:


Fund Facts
Fund Overview as of 12/31/12
Fourth Quarter 2012 / MTA Stable Value Fund
Fund Category Stable Value
Fund Advisor Galliard Capital Management
Inception Date 10/1/1998
Total Net Assets $1,665,199,300
Expense Ratio 0.11%
Participant Withdrawal/Transfers Daily
Blended Yield (after fees) 2.68%
Effective Duration 2.79 Years

Fund Allocation
Sector Allocation of the
Underlying Fixed Income Portfolio
Security Backed Investment Contracts 69.1%
Stable Value Funds 16.5%
Separate Account GICs 14.4%
U.S. Treasury/Agency 31.3%
Other U.S. Government 2.5%
Corporate/Taxable Municipal Securities 22.8%
Mortgage Backed Securities (MBS) 27.4%
Asset Backed Securities (ABS) 6.9%
Guaranteed Investment Contracts (GICs) 0.3%
International Gov’t/Agency Securities 0.6%
Cash/Equivalents 8.0%

Investment Contract Issuers
Issuer Moody’s Rating S&P Rating
United of Omaha Life Ins. Co. A1 A+
Prudential Ins. Co. of America A2 AAMonumental
Life Ins. Co. A1 AAMetropolitan
Life Ins. Co. Aa3 AATransamerica
Life Insurance A1 AANatixis
Financial Products Inc. A2 A

Periods Ending 12/31/12
Fund /Benchmark
4Q’12 0.69% /0.30%
YTD 2.82% /1.27%
1 Year 2.82% /1.27%
3 Year 3.27% /1.91%
5 Year 3.75% /2.34%
10 Year 4.34% /3.38%

*Returns for periods less than one year are not annualized. Performance is net of all fees. Benchmark is the 5 Year
Constant Maturity Treasury Yield + 50 bps. While it is believed that the benchmark used here represents an appropriate
point of comparison for the Fund referenced above, prospective investors should be aware that the volatility of the above
referenced benchmark or index may be substantially different from that of the Fund; and holdings in the Fund may differ
significantly from the benchmark or index if the investment guidelines and criteria are different than the Fund.
**Expense ratio represents Galliard’s investment management fee and the investment management fees for the Fund’s
subadvisors.
Note: This material has been provided by a third party. Prudential Retirement does not make any representation as to the
accuracy or completeness of the information contained herein. This information is provided for informational purposes
only and should not be considered a recommendation to buy or sell any security.
The Fund is a separate account managed exclusively for the Metropolitan Transportation Authority. The Fund and the
underlying collective funds are not insured by the FDIC, Federal Reserve Bank, nor guaranteed by Wells Fargo or
any affi liate, including Galliard Capital Management. Returns also include all income, realized and unrealized capital
gains and losses, and all transactional and contract execution costs. Past performance is not an indication of how the
investment will perform in the future. Individual returns may differ due to level and timing of activity in your account.

The MTA Stable Value Fund is an investment option that seeks to provide safety
of principal and a stable credited rate of interest, while generating competitive
returns over time compared to other comparable investments.
Investment Objective
Investment Strategy
The MTA Stable Value Fund, managed by Galliard Capital Management, is
primarily comprised of investment contracts issued by financial institutions and
other eligible stable value investments. All contract issuers and securities utilized
in the portfolio are rated investment grade by one of the Nationally Recognized
Statistical Rating Organizations at time of purchase. The types of investment
contracts in which the Fund invests include Separate Account GICs and
Security Backed Investment Contracts. These types of contracts seek to provide
participants with safety of principal and accrued interest as well as a stable
crediting rate.
Separate Account GICs are GICs issued by an insurance company and are
maintained within a separate account. Separate Account GICs are typically backed
by segregated portfolios of fixed income securities.
Security Backed Investment Contracts are comprised of two components: 1)
investment contracts issued by a financial institution and 2) underlying portfolios
of fixed income securities (i.e. bonds) whose market prices fluctuate. The
investment contract is designed to allow participants to transact at book value
(principal plus accrued interest) without reference to the price fluctuations of the
underlying fixed income securities.
MTA011813
The Stable Value Fund may be appropriate for someone seeking to safeguard
principal or balance a portfolio having more aggressive investments.
Investor Profile
Relative Risk
Conservative Moderate Aggressive
Money Markets Bond Funds Stock Funds
Stable Value
Fund Advisor
Galliard Capital Management is the Fund’s Advisor. Galliard specializes in stable
value management and currently manages more than $85.2 billion in assets for
institutional investors



I'm thinking of allocating about 15%-20% of the fixed income portion of my portfolio to this fund to reduce volatility and improve risk-adjusted returns in my overall portfolio.


FYI: I already hold total bond market and Vanguard TIPS (VIPSX) in my 401k/457b and Roth IRA, respectively.
Last edited by joer1212 on Tue Jul 28, 2015 11:54 pm, edited 5 times in total.
Johm221122
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

I would definitely consider it.I recently increased my percentage in my stable value
John
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Peter Foley
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Re: Should I invest in a stable value fund?

Post by Peter Foley »

This appears to be a good stable value fund - more transparent than most. I use a stable value fund and I can't see any reason not to use one for a portion of your non equities. In our current interest rate environment, these are good options.
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Toons
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Re: Should I invest in a stable value fund?

Post by Toons »

Yes :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Topic Author
joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Peter Foley wrote:This appears to be a good stable value fund - more transparent than most. I use a stable value fund and I can't see any reason not to use one for a portion of your non equities. In our current interest rate environment, these are good options.
Do you think this is a superior option than using 100% total bond fund/TIPS for fixed income, even though stable value's return is less?
Dandy
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Re: Should I invest in a stable value fund?

Post by Dandy »

I used the Stable Value fund extensively when I was working and loved it. It was hard to find out who was providing the insurance. Once the 2008 crisis started I was not comfortable with the lack of information and the prospect of the insurance company (who ever it was) going into default so I moved my 401k to Vanguard. I miss the stability of the stable value fund especially now with the uncertainty about interst rates.

So I would endorse going into it but caution you to try to determine what insurance company is providing the wrapper that keeps it stable and make sure to keep an eye on their ratings. Oh yeah - about those rating companies :happy
Topic Author
joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Dandy wrote:I used the Stable Value fund extensively when I was working and loved it. It was hard to find out who was providing the insurance. Once the 2008 crisis started I was not comfortable with the lack of information and the prospect of the insurance company (who ever it was) going into default so I moved my 401k to Vanguard. I miss the stability of the stable value fund especially now with the uncertainty about interst rates.

So I would endorse going into it but caution you to try to determine what insurance company is providing the wrapper that keeps it stable and make sure to keep an eye on their ratings. Oh yeah - about those rating companies :happy
The insurance companies are listed in the info I provided about the fund. There are a few of them, so that is reassuring.
What is not reassuring is that this stable value fund does not seem to keep up with inflation. Aside from cash, shouldn't all the funds in your portfolio have a real return over inflation?
Jack
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Re: Should I invest in a stable value fund?

Post by Jack »

My concern about stable value funds is that they appear to be a free lunch and someday that lunch might come to an abrupt end. Stable value funds are constituted in various ways, including synthetic derivatives, but effectively they are just long term treasury bond funds that aren't required to mark their NAV to market. The free lunch is being able to collect 30-year bond-like interest rates without having the risk of looking at fluctuating NAVs. This has worked fine over the last 30 years with steadily declining interest rates which means positive NAV returns. And as long as deposits exceed redemptions, the fund can always hold the bonds to maturity with no risk of principal.

But all good things eventually come to an end and long term bond rates are unlikely to go much lower. What this means is that eventually, as short term rates go up, they will exceed the rates of the long bonds the funds are holding and must hold to maturity to maintain their NAV. This means stable value funds will underperform short term bond funds. As disappointed investors leave the stable value funds for better performing short bond funds the stable value funds will have to redeem their bonds at a loss. The insurance wrapper is supposed to provide protection against this eventuality, but that insurance has never been tested. What if that insurance turns out to be as fictional as the AIG insurance on derivatives? I'm guessing that either insurance rates will skyrocket, putting further pressure on stable fund returns or else the insurance companies will default. The question is whether stable value funds will be deemed to big to fail and bailed out.
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Peter Foley
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Re: Should I invest in a stable value fund?

Post by Peter Foley »

joer1212 wrote:
by joer1212 » Mon Mar 11, 2013 3:03 pm



"Peter Foley wrote:This appears to be a good stable value fund - more transparent than most. I use a stable value fund and I can't see any reason not to use one for a portion of your non equities. In our current interest rate environment, these are good options."


Do you think this is a superior option than using 100% total bond fund/TIPS for fixed income, even though stable value's return is less?
Yes joer, I think having some of one's allocation in stable value is a superior option. I am well aware that this has not been the case in the past as Total Bond and TIPs have both outperformed my stable value fund. Over the past couple years my stable value has dropped from a total return of about 4.25% to 3.5%. If interest rates level off or start to rise I would guess that my stable value return would exceed Total Bond and TIPS.
dickenjb
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Re: Should I invest in a stable value fund?

Post by dickenjb »

joer1212 wrote: Do you think this is a superior option than using 100% total bond fund/TIPS for fixed income, even though stable value's return is less?
Less than what? Last time I checked Total Bond was yielding about 1.6%.

If I were you I would be putting a large fraction of my fixed income into this SVF.
Dandy
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Re: Should I invest in a stable value fund?

Post by Dandy »

It would be great if all investments beat inflation. But that is not choices we have before us. We have equity risks which may be higher in the shorter time since they have been on a good bull run. We have bonds that are paying low interest rates - mostly below the inflation rate unles you up the duration to beyond intermediate term and have also had a bull market (bubble?) run. And we have cash like investments that ususually don't risk your investment but pay far less than inflation.

So, we have a very poor array of choices that most of us haven't quite faced before. Should we put all our investments in "risky" stocks and bonds or take pretty much a guaranteed loss to inflation for some of the assets? Is losing a percent or so in buying power worse than risking a double digit loss or more? The answer may depend on your stage of life and your risk tolerence.
Stonebr
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Re: Should I invest in a stable value fund?

Post by Stonebr »

I used stable value throughout my career and still have some 401k money in it. Stable value funds are typically based on institutional insurance contracts. However, they can be contracts with either a single company, or with a portfolio of insurance contracts from various insurers. In the latter case, the risk is spread over many companies. Ask your HR department.

As for beating inflation, the only thing guaranteed is TIPs. Stocks, bonds, real estate, gold, stable value -- all that stuff has no guarantee that it will beat inflation. You take your chances.

Why not read the Boglehead wiki page on stable value?
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear
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webslinger
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Re: Should I invest in a stable value fund?

Post by webslinger »

Yes, having part of your allocation in a stable value fund makes a lot of sense. In addition to oing your homework on understanding what's under the hood of your company 401K stable value fund, you should read the wiki http://www.bogleheads.org/wiki/Stable_Value_Fund. Make sure you understand the restrictions around the fund. For example, my company does not permit direct transfer of funds from the SV fund to any other iced income fund (oh have to park the money "temporarily" in a stock fund e.q.). Also, companies which undergo significant HR events such as layoffs, sale, etc may delay withdrawals from a SV fund (until contracts unwind etc).
Webslinger
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

dickenjb wrote:
joer1212 wrote: Do you think this is a superior option than using 100% total bond fund/TIPS for fixed income, even though stable value's return is less?
Less than what? Last time I checked Total Bond was yielding about 1.6%.

If I were you I would be putting a large fraction of my fixed income into this SVF.
+1 don't pick investmens by past performance
John
Topic Author
joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Jack wrote:My concern about stable value funds is that they appear to be a free lunch and someday that lunch might come to an abrupt end. Stable value funds are constituted in various ways, including synthetic derivatives, but effectively they are just long term treasury bond funds that aren't required to mark their NAV to market. The free lunch is being able to collect 30-year bond-like interest rates without having the risk of looking at fluctuating NAVs. This has worked fine over the last 30 years with steadily declining interest rates which means positive NAV returns. And as long as deposits exceed redemptions, the fund can always hold the bonds to maturity with no risk of principal.

But all good things eventually come to an end and long term bond rates are unlikely to go much lower. What this means is that eventually, as short term rates go up, they will exceed the rates of the long bonds the funds are holding and must hold to maturity to maintain their NAV. This means stable value funds will underperform short term bond funds. As disappointed investors leave the stable value funds for better performing short bond funds the stable value funds will have to redeem their bonds at a loss. The insurance wrapper is supposed to provide protection against this eventuality, but that insurance has never been tested. What if that insurance turns out to be as fictional as the AIG insurance on derivatives? I'm guessing that either insurance rates will skyrocket, putting further pressure on stable fund returns or else the insurance companies will default. The question is whether stable value funds will be deemed to big to fail and bailed out.
If you want to call getting returns that lag behind inflation a "free lunch".
Granted, stable value funds have higher returns than similar investments, (e.g. short-term bonds) but my concern is that I am allocating part of the fixed income portion of my portfolio to an asset class that is virtually guaranteed not to keep up with inflation.
Last edited by joer1212 on Sun Feb 22, 2015 12:09 pm, edited 1 time in total.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

webslinger wrote:Yes, having part of your allocation in a stable value fund makes a lot of sense. In addition to oing your homework on understanding what's under the hood of your company 401K stable value fund, you should read the wiki http://www.bogleheads.org/wiki/Stable_Value_Fund. Make sure you understand the restrictions around the fund. For example, my company does not permit direct transfer of funds from the SV fund to any other iced income fund (oh have to park the money "temporarily" in a stock fund e.q.). Also, companies which undergo significant HR events such as layoffs, sale, etc may delay withdrawals from a SV fund (until contracts unwind etc).
Webslinger
Thanks for the link. I had read this a few days ago when I was searching on the internet for information about stable value funds, but it doesn't quiet clear up the mathematical enigma of which portfolio has better risk-adjusted returns, one with a stable value fund as part of the fixed income portion, or one that only has total bond fund and TIPS?
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

As for beating inflation, the only thing guaranteed is TIPs. Stocks, bonds, real estate, gold, stable value -- all that stuff has no guarantee that it will beat inflation. You take your chances.
Yes, but stocks, bonds and real estate have a much better chance of outpacing inflation than a stable value fund.
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

joer1212 wrote:
As for beating inflation, the only thing guaranteed is TIPs. Stocks, bonds, real estate, gold, stable value -- all that stuff has no guarantee that it will beat inflation. You take your chances.
Yes, but stocks, bonds and real estate have a much better chance of outpacing inflation than a stable value fund.
What was inflation last year?
What was your stable value fund return?
John
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Dandy wrote:It would be great if all investments beat inflation. But that is not choices we have before us. We have equity risks which may be higher in the shorter time since they have been on a good bull run. We have bonds that are paying low interest rates - mostly below the inflation rate unles you up the duration to beyond intermediate term and have also had a bull market (bubble?) run. And we have cash like investments that ususually don't risk your investment but pay far less than inflation.

So, we have a very poor array of choices that most of us haven't quite faced before. Should we put all our investments in "risky" stocks and bonds or take pretty much a guaranteed loss to inflation for some of the assets? Is losing a percent or so in buying power worse than risking a double digit loss or more? The answer may depend on your stage of life and your risk tolerence.
I'm trying to construct an asset allocation that will remain the same in all market conditions. It's part of my passive investing approach, instead of trying to pick a right time to purchase one fund and sell another. If a stable value fund is not a good addition to my portfolio in all market conditions, I will omit it entirely. Once I choose to include it, however, it will remain indefinitely to play a specific role in my portfolio. In other words, I'm trying to hire asset classes that are worthy of permanent employment in my portfolio, each with a specific assigned role.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Less than what? Last time I checked Total Bond was yielding about 1.6%.
But that's just yield alone. I think total return for 5 years is around 6%, if I'm not mistaken. If I am, I am pretty sure total bond handily beats stable value. If it didn't, I'd be a fool not to allocate my entire fixed income portion (30%) of my portfolio to stable value and TIPS, and get rid of total bond entirely.
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

joer1212 wrote:
Less than what? Last time I checked Total Bond was yielding about 1.6%.
But that's just yield alone. I think total return for 5 years is around 6%, if I'm not mistaken. If I am, I am pretty sure total bond handily beats stable value. If it didn't, I'd be a fool not to allocate my entire fixed income portion (30%) of my portfolio to stable value and TIPS, and get rid of total bond entirely.
It is not likely for total bond to have any more big increases from capital grains. More likely is capital losses
John
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Yes joer, I think having some of one's allocation in stable value is a superior option. I am well aware that this has not been the case in the past as Total Bond and TIPs have both outperformed my stable value fund. Over the past couple years my stable value has dropped from a total return of about 4.25% to 3.5%. If interest rates level off or start to rise I would guess that my stable value return would exceed Total Bond and TIPS.
Good point, and one that I have thought of myself. However, isn't the current interest rate environment rare and unique? Once this anomaly passes, will stable value fund still offer the same diversification benefits? In other words, is the usefulness of a stable value fund in a diversified portfolio limited only to the current environment, with the threat of rising interest rates? After interest rates rise, will stable value still have a role in a portfolio?
Last edited by joer1212 on Tue Mar 12, 2013 3:29 am, edited 1 time in total.
Johm221122
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

If you use search feature at top right, there are a lot of posts.Here is one
http://www.bogleheads.org/forum/viewtop ... 10&t=93121
John
Johm221122
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

joer1212 wrote:
Yes joer, I think having some of one's allocation in stable value is a superior option. I am well aware that this has not been the case in the past as Total Bond and TIPs have both outperformed my stable value fund. Over the past couple years my stable value has dropped from a total return of about 4.25% to 3.5%. If interest rates level off or start to rise I would guess that my stable value return would exceed Total Bond and TIPS.
Good point, and one that I have thought of myself. However, isn't the current interest rate environment rare and unique? Once this anomaly passes, will stable value fund still offer the same diversification benefits? In other words, is the usefulness of a stable value fund in a diversified portfolio limited only to the current environment, with the threat of rising interest rates? After interest rates rise, will stable value still have a role in a portfolio?
If rates get extremely high, we may feel the opposite and consider long term bonds instead (for opportunity to take advantage of unusually high rates).Nobody knows whats best.Sometimes people don't have choices in 401.If you have choice either should be good either total bond market or stable value should have similar returns. If you do taxable, some feel savings bonds are great option. THE MOST important thing is percentage to fixed income
John
Dandy
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Re: Should I invest in a stable value fund?

Post by Dandy »

A stable value fund is a good all weather choice for a decent portion of your fixed income allocation. At times the return of other fixed income choices will be better and at times worse. But the stability and decent yield warrants it for incluclusion on a permanent basis in your allocation.
dickenjb
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Re: Should I invest in a stable value fund?

Post by dickenjb »

joer1212 wrote:
Less than what? Last time I checked Total Bond was yielding about 1.6%.
But that's just yield alone. I think total return for 5 years is around 6%, if I'm not mistaken. If I am, I am pretty sure total bond handily beats stable value. If it didn't, I'd be a fool not to allocate my entire fixed income portion (30%) of my portfolio to stable value and TIPS, and get rid of total bond entirely.
And the single best predictor of future returns on a bond fund is its current yield to maturity.

Unless you think rates are going to fall another 3% (from 1.6%!)
MGBGTV8
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Re: Should I invest in a stable value fund?

Post by MGBGTV8 »

I have a Vanguard Stable Value Fund in my 403(b) plan. FWIW, annual returns for 1/3/5 year periods ending 12/31/12 were 1.70/1.84/2.52% and 5-year rolling CMT (constant maturing treasury) which is used as a benchmark were 2.18/2.85/3.24%. So you can see what you give up for the reduction in volatility. I like it for the most conservative portion (and smallest %age) of my retirement portfolio, since they are only offered within retirement plans (with the other restrictions mentioned earlier). For new contributions, it is a better return than the TIAA-CREF guaranteed annuity contracts, but not better than some of the older existing contracts, so I let those ride at 2.5% (for 2012).

I imagine that it might be a choice for those in retirement looking to keep their money for the next couple of years out of more volatile investments. 5 year CDs at our credit union are paying 1.06% right now, so the SV fund is slightly better.
dbr
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Re: Should I invest in a stable value fund?

Post by dbr »

dickenjb wrote:
joer1212 wrote:
Less than what? Last time I checked Total Bond was yielding about 1.6%.
But that's just yield alone. I think total return for 5 years is around 6%, if I'm not mistaken. If I am, I am pretty sure total bond handily beats stable value. If it didn't, I'd be a fool not to allocate my entire fixed income portion (30%) of my portfolio to stable value and TIPS, and get rid of total bond entirely.
And the single best predictor of future returns on a bond fund is its current yield to maturity.

Unless you think rates are going to fall another 3% (from 1.6%!)
Just to underline this very important point, that return was driven by falling interest rates in recent, and not so recent, years. It is not a good forecast of what will happen in the future.

One response to this is to have a plan to be in and stay in a certain bond portfolio for the long run, possibly TBM, and stay the course. A different response could be to look at the market for stable value or cash equivalent investments which may give more return for the time being. I think the best long term plan is the first, but then that might have included using stable value funds all along.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

MGBGTV8 wrote:I have a Vanguard Stable Value Fund in my 403(b) plan. FWIW, annual returns for 1/3/5 year periods ending 12/31/12 were 1.70/1.84/2.52% and 5-year rolling CMT (constant maturing treasury) which is used as a benchmark were 2.18/2.85/3.24%. So you can see what you give up for the reduction in volatility. I like it for the most conservative portion (and smallest %age) of my retirement portfolio, since they are only offered within retirement plans (with the other restrictions mentioned earlier). For new contributions, it is a better return than the TIAA-CREF guaranteed annuity contracts, but not better than some of the older existing contracts, so I let those ride at 2.5% (for 2012).

I imagine that it might be a choice for those in retirement looking to keep their money for the next couple of years out of more volatile investments. 5 year CDs at our credit union are paying 1.06% right now, so the SV fund is slightly better.
I guess I'm lucky with my svf. Check out my returns in the info I provided.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

THE MOST important thing is percentage to fixed income
Yeah, what about that percentage? I was wondering the same thing. I think I vaguely remember reading somewhere that stable value fund should make up 15%-20% of the fixed income portion of one's portfolio. What would you allocate to stable value?
Dandy
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Re: Should I invest in a stable value fund?

Post by Dandy »

1/3 stable value, 1/3 short term bonds/funds, 1/3 interemediate bonds/funds
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Dandy wrote:A stable value fund is a good all weather choice for a decent portion of your fixed income allocation. At times the return of other fixed income choices will be better and at times worse. But the stability and decent yield warrants it for incluclusion on a permanent basis in your allocation.
Thanks, that is exactly what I was asking.
In the back of my mind, I was pondering what the difference is between investing in stable value and investing in gold, since they both barely (if at all) keep up with inflation. Why do so many investors shun and deride gold as part of their asset allocation, yet embrace stable value? I guess the answer is that stable value is 'stable', while gold is volatile and unpredictable (with long periods of underperformance), even though they have similar long-run returns.
Last edited by joer1212 on Tue Mar 12, 2013 1:29 pm, edited 1 time in total.
Buckeye
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Re: Should I invest in a stable value fund?

Post by Buckeye »

I think the heydey of stable value funds might be over for quite awhile.

I'm actually starting to think of what to do with the money I currently have invested in it as the monthly returns are beginning to drop quickly already.....a year sooner than I expected.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Buckeye wrote:I think the heydey of stable value funds might be over for quite awhile.

I'm actually starting to think of what to do with the money I currently have invested in it as the monthly returns are beginning to drop quickly already.....a year sooner than I expected.
That's not a problem for me, provided stable value fund's returns are competitive with total bond fund and inflation. It's not the actual return I am concerned about; it's the return compared to other fixed income investments (and inflation) over a period of time.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

THE MOST important thing is percentage to fixed income
What percentage of fixed income would you allocate to stable value?
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Dandy wrote:1/3 stable value, 1/3 short term bonds/funds, 1/3 interemediate bonds/funds
Thanks.
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joer1212
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Re: Should I invest in a stable value fund?

Post by joer1212 »

Johm221122 wrote:If you use search feature at top right, there are a lot of posts.Here is one
http://www.bogleheads.org/forum/viewtop ... 10&t=93121
John
Thanks, very informative.
dbr
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Re: Should I invest in a stable value fund?

Post by dbr »

joer1212 wrote:
THE MOST important thing is percentage to fixed income
Yeah, what about that percentage? I was wondering the same thing. I think I vaguely remember reading somewhere that stable value fund should make up 15%-20% of the fixed income portion of one's portfolio. What would you allocate to stable value?
I have commented that for myself I would prefer not to hold more than perhaps 15% of total portfolio in SV due to idiosyncratic risk, meaning that one does not know for sure something might not go upside down in that one particular fund.

That does not even remotely translate into any kind of "should." There is no proportion one "should" hold.
Default User BR
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Re: Should I invest in a stable value fund?

Post by Default User BR »

joer1212 wrote:Yeah, what about that percentage? I was wondering the same thing. I think I vaguely remember reading somewhere that stable value fund should make up 15%-20% of the fixed income portion of one's portfolio. What would you allocate to stable value?
From the time I came up with my portfolio allocation in 2007, I have had my fixed-income 50/50 stable-value/aggregate bonds. Obviously, I would have done better with it all in the agg bond fund, but that would have required me to be able to foresee the future.


Brian
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Re: Should I invest in a stable value fund?

Post by Johm221122 »

joer1212 wrote:
THE MOST important thing is percentage to fixed income
What percentage of fixed income would you allocate to stable value?
To answer your question , Brian's 50/50 stable value and total bond seems reasonable. But originally my question on your stock/ bond percentage will have more more impact on your portfolio than the difference between stable value and total bond in long term.Short term difference between stable value and total bond may seem big, but long-term, going thru rising and declining interest rates the returns should be similar
John
Senin
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Re: Should I invest in a stable value fund?

Post by Senin »

Stable Value Funds are awesome. I just wished they weren't restricted to 401ks. I would definitely add them to my non tax portfolio.
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