Author Topic: "Stable Value" investment type  (Read 4294 times)

iris lily

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"Stable Value" investment type
« on: August 14, 2013, 10:07:49 PM »
Is there actually an asset class called "Stable Value" fund?

DH came home from an investment seminar saying that "Stable Value" type funds pay 3 - 4 %. That's where I's like my money to be if there IS such as thing. I want to get out of the stock market, it's way too high and crazy.

Are there actually reliable funds that churn out 3 % - 4% annually, come rain or shine?

Another Reader

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Re: "Stable Value" investment type
« Reply #1 on: August 14, 2013, 10:16:23 PM »
Stable value funds are often offered in qualified retirement plans managed by insurance companies.  The underlying investments are short term annuity contracts or bonds.  They are not like CD's - they are not bank products.  Who gave the investment seminar?

dragoncar

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Re: "Stable Value" investment type
« Reply #2 on: August 14, 2013, 10:36:28 PM »
I've seen this in a relative's 401k plan.  Admittedly I don't know much about it, but if iris lily is correct, it looks like a very low risk fund that may ultimately be somewhat subsidized.  I know I counseled my relative to keep the "cash" portion of their asset allocation in that fund because it was returning far more than other short term investments.  Typically, you'd have to look at the prospectus to get the real deal.

Something like this:

https://retirementplans.vanguard.com/pe/pdfs/F4248.pdf

sol

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Re: "Stable Value" investment type
« Reply #3 on: August 14, 2013, 10:51:34 PM »
My experience with stable value fund from insurance companies is that they are all scams.

They tout this supposed "guaranteed" 4% return to elderly people who don't ask very penetrating questions.  Then they charge outrageous fees to "manage" the money in the fund, turning it into an effective 1% (below inflation!) rate.  Then if/when you realize how screwed your'e getting, they hit you with even worse surrender fees to get your money back out.  It's a nightmare.

I say read the fine print.  Skeptically.

bUU

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Re: "Stable Value" investment type
« Reply #4 on: August 15, 2013, 04:48:49 AM »
The scam, as I understand it, generally involves sacrificing the principal to earn a "stable" income stream - in other words, they're just annuity contracts subject to all the same pros and cons of annuities.

Some of our 401ks once offered stable value funds. I don't think they were subsidized, because once the provision of a stable value fund became impractical financially on its own accord those options vanished. In one 401k, now, we have a "Retirement Assets" fund which pays a rate of 0.00% (they thought it important to display that to the hundredths of a percent).

neoptolemus412

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Re: "Stable Value" investment type
« Reply #5 on: August 15, 2013, 05:12:22 AM »
Here's details & a link regarding Stable Value Funds (SVF):

SVFs are only for institutional investors with a qualified retirement plan (401K) b/c of the type of investments the fund utilizes to get a guaranteed return.  You can invest invest through your 401K, but not as a retail investor.  The investments held in the fund are called Guaranteed Investment Contracts (GICs).  They are insurance contracts that allow a SVF to guarantee the 3%-4%.  It's not an annuity in the sense you think of it.  It's pretty much a contract that invests your money in a bond fund.  However, you get the 3-4% guaranteed if the bond fund rises or dips. 

They are not scams.  However, they have credit and liquidity risks because the GICs are invested with big insurance companies/banks (BOA, Prudential, ect.).   If a ton of people withdrawal from the fund, there is a liquidity issue.  This is why they are in 401Ks b/c withdrawal rates are low. 

If anyone cares for more details, the link below explains everything you'd want to know about SVFs (Vanguard Retirement Savings Trust is one of the better ones). 

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=121341

iris lily

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Re: "Stable Value" investment type
« Reply #6 on: August 15, 2013, 10:59:08 PM »
Stable value funds are often offered in qualified retirement plans managed by insurance companies.  The underlying investments are short term annuity contracts or bonds.  They are not like CD's - they are not bank products.  Who gave the investment seminar?

It was an Edward Jones seminar.

bUU

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Re: "Stable Value" investment type
« Reply #7 on: August 16, 2013, 03:01:34 AM »
Everything I've read about Edward Jones since digging deep into personal finance last year was that Edward Jones is all about cost.

Another Reader

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Re: "Stable Value" investment type
« Reply #8 on: August 16, 2013, 05:41:31 AM »
If the OP is looking for investment education, she and her DH should attend basic investing seminars at the local Fidelity and/or Charles Schwab offices.  Edward Jones makes money by selling high commission, high expense ratio mutual funds and other financial "products" to individuals with no investment knowledge.  There is an Edward Jones office on every corner in Sun City in Arizona, fleecing the senior citizens that don't know any better.

Stable value funds have their place.  I have money in a stable value account in a 457 plan.  I moved the invested funds to an IRA a few days after I retired, but the 3 percent plus yield on one year's worth of retirement expenses was better than any bank and there were none of the bond fund risks.  As much as I hate Prudential for their 457 mutual fund offerings, I am happy with the stable value fund. 

The OP and other folks in her position should understand there is no substitute for education when it comes to your money.  No one cares about your money as much as you do, and there are plenty of people out there that will try to convince you they can do a better job managing it than you can, because they are "professionals."  With a little education, you can overcome your fears and do a better job yourself.