I have a 403b account (under the auspices of CALSTRS, managed by Voya) that includes a "stable value" option currently paying about 3.5% annually after fees, set to adjust to 3.25% in October. I could roll the money into my existing Vanguard IRA (I recently passed the age milestone that allows such a rollover without penalty), but I am considering leaving a large chunk behind in the stable value fund, as an alternative form of my portfolio's bond allocation. The main reason I hold bonds is to buffer volatility (my allocation is about 75/25 stock/bond). The idea is that the stable value allotment would make up the majority of my total bond allocation.
Any significant downside to this strategy? I have little prior experience with stable value funds, and to the extent that I do, they have worked as promised. I rarely see them discussed in articles about asset allocation. By the way, I would retain the option to rollover the stable value funds at a later date, should the interest rate become unfavorable.
Stable value as alternative to bond exposure?
Re: Stable value as alternative to bond exposure?
There have been a few threads on this recently, as I think the low yields on bonds have caused more people to take a look at stable value options in their plans. The consensus has generally been that it's a good idea but with some risk if the company goes under.
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viewtopic.php?f=10&t=164858
viewtopic.php?f=1&t=165243
viewtopic.php?f=10&t=168196
viewtopic.php?f=1&t=167742
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Re: Stable value as alternative to bond exposure?
3.25% sounds like a good deal.
Wiki has an article:
http://www.bogleheads.org/wiki/Stable_value_fund
Wiki has an article:
http://www.bogleheads.org/wiki/Stable_value_fund
Re: Stable value as alternative to bond exposure?
I like your plan to continue to use the Stable value fund. I would expect that there may be a few years of turmoil in the bond market ahead so why not have some money in something stable that pays an above market yield.
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Re: Stable value as alternative to bond exposure?
Being just retired I have practically all my 40/60 fixed income in stable value funds. None in bonds. Half in Nationwide at 3.5%, half in Voya ( CalSTRS) at 3.5%currently after CalSTRS fees,going down to 3.25% in October. I recently rolled into Voya. While its return will go down (almost for sure) over the next 5 years, it is practically liquid, so if, or when bonds, cds etc are better value, (or I need to buy stocks to rebalance) it is very easy to get money out of Voya stable value. My Nationwide stable value takes 5 years to withdraw from fully, so while it will probably be a better return come October, I preferred to have some money in a fully liquid fund, which also gives a little risk diversification ( not that I am worried about that). IMHO there in no downside to having all your fixed income in Voya stable value, at least ,( probably), for the next 2 or 3 years. A huge number of Bogleheads would love to have access to a fully liquid stable value fund returning 3% or more.
Re: Stable value as alternative to bond exposure?
Thanks, all, for the replies. I'm glad it looks as if there isn't some dark side to stable value that I didn't recognize. Castlemodesto--it sounds like we're in exactly the same fund.
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Re: Stable value as alternative to bond exposure?
I disagree in that i think its a great deal in the current investment climate.HurdyGurdy wrote:3.25% sounds like a good deal.
Wiki has an article:
http://www.bogleheads.org/wiki/Stable_value_fund
Re: Stable value as alternative to bond exposure?
The downside to stable value funds as compared to intermediate bonds for dampening volatility is you won't get an increase in value when market yields drop. Conventional thinking for more "normal" times is when the economy is not good, bond yields drop (bond price increases) while stock prices are falling. So increased bond prices partly offset falling stock prices.
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