Bond Market Index vs Stable Value?

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Jhford58
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Bond Market Index vs Stable Value?

Post by Jhford58 » Wed Oct 10, 2018 9:45 pm

60 yrs old, Retired with a pension that covers all living expenses with about $1k/mo spare and enough cash reserve to not pull from Nestegg for several years to supplement retirement travel etc....

I've started building a three fund portfolio and wondering if anyone has ever used the Stable Value fund within their 401k as opposed to an index bond market fund (such as BND or VBMFX)? Although the fund expense is double either of those Vanguard funds, the returns in my Empower SVF are very comparable, and without the losses they are experiencing this past year. I don't see any down side to using the SVF for my bond allocation in the three fund mix, at least thru this period of interest rate rise. Your perspective is much appreciated. Thanks.

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whodidntante
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Re: Bond Market Index vs Stable Value?

Post by whodidntante » Wed Oct 10, 2018 9:54 pm

I do 50% SVF, 50% TBM in my 401k to shorten duration. I have a short duration bond fund available, but it's a weird expensive junk bond fund that somehow got lucky for a few years so the plan advisor picked it.

alex_686
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Re: Bond Market Index vs Stable Value?

Post by alex_686 » Wed Oct 10, 2018 9:55 pm

Jhford58 wrote:
Wed Oct 10, 2018 9:45 pm
I've started building a three fund portfolio and wondering if anyone has ever used the Stable Value fund within their 401k as opposed to an index bond market fund (such as BND or VBMFX)? Although the fund expense is double either of those Vanguard funds, the returns in my Empower SVF are very comparable, and without the losses they are experiencing this past year. I don't see any down side to using the SVF for my bond allocation in the three fund mix, at least thru this period of interest rate rise. Your perspective is much appreciated. Thanks.
Every stable value fund is different, so it is hard to generalize. However, lots of people here use stable value funds instead of bond indexes.

Skip the comprehension between expense ratios. Stable value funds are a insurance product, and insurance products calculate their expense ratios differently. What might get coded as a trading expense or investment in a mutual fund (and not counted towards the expense ratio) might be coded as a expense in a stable fund.

What you want to focus on is forward yield and the duration risk (interest rate risk) between the 2. Plus, the funding level for the stable fund.

jalbert
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Re: Bond Market Index vs Stable Value?

Post by jalbert » Wed Oct 10, 2018 10:27 pm

Yes, SVF expense ratios typically include a premium to cover the issuer(s) absorbing credit risk and term risk.

The main thing is to try to understand what the underlying portfolio is and also what sort of triggering events might cause withdrawals to be processed at market value instead of stable value, often easier said than done. This is to understand the risks.
Risk is not a guarantor of return.

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Peter Foley
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Re: Bond Market Index vs Stable Value?

Post by Peter Foley » Wed Oct 10, 2018 10:38 pm

Both my wife and I have access to stable value funds that pay more the the rate of inflation. Those funds make up about 60% of our non equities. We also have a bond fund, TIPS and I-bonds.

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Earl Lemongrab
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Re: Bond Market Index vs Stable Value?

Post by Earl Lemongrab » Thu Oct 11, 2018 1:27 am

I also do 50/50 stable and bond index. Megacorp's fund is paying about 2.65% currently.
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Ron Scott
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Re: Bond Market Index vs Stable Value?

Post by Ron Scott » Thu Oct 11, 2018 8:59 am

Used stable value for many years instead of bonds in the 401k. 5050 not counting KSOP.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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