Stable Value Funds

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stuper1
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Stable Value Funds

Post by stuper1 »

I generally like to keep my bonds in Treasuries for safety. However, I have access to a stable value fund in an old 401k, and I"m thinking of putting some of my bonds there since the yield is much better right now than in short-term Treasuries. Before I do that, I'd like to know how safe it is. I know there are insurance contracts under the hood. Are there any horror stories of stable value funds having problems during times of crisis, say in 2008 or other times?
26% US large cap, 26% US small-cap value, 15% long-term Treasuries, 15% short-term Treasuries, 18% gold
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JoMoney
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Re: Stable Value Funds

Post by JoMoney »

Most stable value funds are very prudently ran, not just because of the insurance companies underwriting them, but the fiduciary responsibilities your 401k provider is required to have.
The issue I would be most concerned about it, is the fund is at a higher risk of being frozen/made illiquid then a money market fund, so if you're expecting to be able to get out in a crisis it could be temporarily unavailable to trade out of. There are usually explicit rules prohibiting you from trading directly from a SV fund to a "competing" bond/money market fund.
I've heard of a situation where someone's 401k plan decided to get rid of their Stable Value fund, and the fund was able to pass marked to market losses on to the holders that weren't expecting it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Soon2BXProgrammer
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Re: Stable Value Funds

Post by Soon2BXProgrammer »

I personally use a stable value fund, it currently doesn't have any liquidity/trading restrictions but they have the option to add a restriction (and that restriction is documented).

It has about 10 insurance companies that back it. I have no problem using it as most of my bond allocation.
flyingaway
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Re: Stable Value Funds

Post by flyingaway »

Some stable value funds have frequent trading restrictions.
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Stinky
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Re: Stable Value Funds

Post by Stinky »

Just check to be sure that you understand what, if any, restrictions your plan imposes on transfers out of the stable value fund.

There have been a lot of threads recently about stable value funds. It sounds like a lot of people are seeing SV yields that are higher than available in their plans bond funds.
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Peter Foley
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Re: Stable Value Funds

Post by Peter Foley »

I too have used stable value funds for a good portion of my non equities. I've never had any problems.

One reason that we used them in my wife's account is that they had high interest rate guarantees based on when deposits were made. Some are still paying 4% interest. Mine current pay in the 2% to 2.5% range. I'm okay with that.

There are trading restrictions and withdrawal restrictions but that has not presented a problem for us.
cas
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Re: Stable Value Funds

Post by cas »

JoMoney wrote: Sun May 02, 2021 9:58 am I've heard of a situation where someone's 401k plan decided to get rid of their Stable Value fund, and the fund was able to pass marked to market losses on to the holders that weren't expecting it.
That situation was described in this Boglehead's thread: Heavy Loss in Stable Value Fund of 401k investments
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jeffyscott
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Re: Stable Value Funds

Post by jeffyscott »

stuper1 wrote: Sun May 02, 2021 9:27 amAre there any horror stories of stable value funds having problems during times of crisis, say in 2008 or other times?
There might've been, without the AIG bailout.
https://tonyisola.com/2017/08/do-you-ow ... t-account/

I'd avoid the single entity type.
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Portfolio7
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Re: Stable Value Funds

Post by Portfolio7 »

My Stable Value Fund handled 2008 with no issues that I was aware of. It is backed by 8 different top rated companies, which makes me feel better about it.

In the past I generally invested my Fixed Income allocation in Intermediate Treasuries, with some stable value and some tips. The past few years I've been mostly in Stable Value, due to the higher yield (but changes in rates obv have an impact that sometimes overwhelms the yield difference.)
"An investment in knowledge pays the best interest" - Benjamin Franklin
Rcf
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Re: Stable Value Funds

Post by Rcf »

I have used a Stable Value fund in my 401K as an alternative to bond funds for several years. It seems to be safe, has no withdrawal restrictions, and pays a good rate which is adjusted yearly,
LeslieSmiley
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Re: Stable Value Funds

Post by LeslieSmiley »

AJS
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Re: Stable Value Funds

Post by AJS »

No horror story here. I've been happy with the Stable Fund in my retirement plan. I have a 3% guarantee (about 20% of the portfolio holdings). My plan does not have any harsh liquidity restrictions or fees. The company does not offer it anymore so if I rebalance out of the fund, there's no going back but I won't be doing that.
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