Stable Income Fund

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HotRod140
Posts: 86
Joined: Tue Apr 15, 2008 12:24 pm

Stable Income Fund

Post by HotRod140 » Mon Jun 01, 2009 6:15 am

Hi everyone

In regards to the fixed income part of my retirement portfolio. My 457 account from previous city service offers a stable income fund. Right before the crash I put this money in this account (just luck). This fund has avg. a steady 5% every year for the past 10 yrs. my question is, for my bond portion, why dont I just leave it in this fund?

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Padlin
Posts: 677
Joined: Thu Mar 01, 2007 7:46 pm
Location: MA

Post by Padlin » Mon Jun 01, 2009 6:44 am

From what I've been able to figure out (I'm not a pro at this)...
You can put all your bond $ in these, many people I know do just that. The only problems I've found with them so far are...
Inflation can eat up the 5% when and if it happens, the stable funds react very slowly to rising interest rates.
These funds are made up of a number of "wraps", these are loans, including mortgages, that are packaged together and guaranteed by an insurance company to pay X%. In theory if the insurance Co. goes under you could lose money. This occurance has happened but it's rare. I've so far been unable to find out what the ones in our 401k really are composed of, no information is available!

Right or wrong, my bond holdings are roughly:
50% Stable income fund (GIC)
30% Inflation Protected Bonds
20% Intermediate Bond Index
Regards | Bob

Phatphoeater
Posts: 264
Joined: Wed Mar 25, 2009 6:05 pm

Post by Phatphoeater » Mon Jun 01, 2009 8:32 am

I use a stable income fund for my nominal FI allocation. I don't know if stable NAV ($1) is a common feature to these funds but that was the main attraction for me. I understand the main risk being default of the insurers that own this debt. I'm not sure about the interest rate risk. My fund forecasted a 5% decrease in yield for 2009.

If and when this treasury bubble pops, I'm considering moving to a short/intermediate treasury fund mix.

Mitchell777
Posts: 1089
Joined: Mon May 21, 2007 6:32 am

Post by Mitchell777 » Mon Jun 01, 2009 11:35 am

One down side is that it is not usually easy to move from SV to another fixed income investment due to plan rules. Some plans allow a direct move from SV to MM, if your plan has a MM fund, but not to other FI investments. you can sometimes get around it by moving from SV to a stock fund and moving money you already had in the stock fund to another FI funds (again sometimes in some plans). When rates begin to go up, the SV int rate can stay below market rates for some time

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