To prevent yield chasing, most stable value funds prohibit transfers to similar options, such as a money market or short-term bond fund.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Pooled stable value funds, more common at larger companies, use multiple insurers.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Plus, stable value funds have steadily outperformed money markets for two decades.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Often, you can buy just 10 to 12 types of investments, ranging from cash-like stable value funds to bonds and a collection stock funds.
But half of 401(k) participants have another, intriguing choice for a safe haven: stable value funds, which returned 2.36% on average over the past year.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Note that stable value funds are mostly available only in 401(k)s.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Moreover, not all stable value funds are created equal.
FORBES: Worried About A Bond Bubble? Consider A Stable Value Fund For Your 401(k)
Investment Options and Advice: Your retirement plan may offer unique investment options like stable value funds and low cost institutional shares as well as investment education or advice services at no additional cost to you.
Stable-value funds typically consist of a diversified bond portfolio combined with bank or insurance-company "wrap" contracts.
Stable-value funds are designed to deliver steady performance and protect against losses.
Despite this, stable-value funds didn't emerge unscathed from the financial crisis.
Though the market has stabilized, there still is a significant shortage of wrap contracts, causing higher fees and other headaches for stable-value funds and their investors.
The wrap providers "can be as strict as they want to be on terms, " says Chris Tobe, a senior consultant at Breidenbach Capital Consulting who helps employers review stable-value funds.
If all or many investors redeem at the same time, the fund will be forced to sell securities at fire sale prices, causing the fund to break a dollar, but also depressing prevailing market prices and thereby placing pressure on the ability of other funds to maintain a stable net asset value.
Holders of money-market funds would also see their accounts grow, although not as much as stable-value accounts.
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