Investing Spotlight: Stable Value Funds

Many MissionSquare Retirement participants have access to a stable value fund in their retirement plan.1 You may not have heard much about this type of investment prior to joining your retirement plan because it's not available in IRAs or taxable brokerage accounts. It's only available in some employer-based retirement plans. A stable value fund provides a conservative investment option with lower risk than fixed income and equity securities. Similar to many cash equivalent options, it is reported with a stable price with earnings posted each day. This "stable value" is attractive to many participants. Stable value funds can provide portfolio diversification and help mitigate some of the downside risk in your overall portfolio.

Stable value funds tend to pay higher interest rates than cash equivalent options, such as money-market funds, because they invest in slightly longer-term, but not long-term, fixed income securities. Money-market funds tend to invest in fixed income securities that mature, on average, in 30 to 60 days, but stable value funds tend to invest in fixed income securities that mature, on average, in one to three years. The longer-maturity fixed income securities typically pay higher interest rates, but they also have more risk of losing value if market interest rates go up or of possible default.

Money-market funds have returned barely more than 0 percent over the past several years, while stable value funds have generally returned 1.5 percent to 2.5 percent. Also, this is past performance that may not repeat in the future. Investors should be aware that all investments, including money-market funds and stable value funds, have unique risks and no investment should be considered risk-free.

Investors should match their portfolio to their objective and risk profile. For example, those investors who have decades before retirement may choose to keep most of their portfolio in equity funds, which have more risk and more potential for higher long-term returns. But, to dampen volatility, they may keep a portion of their portfolio in a stable value fund or other more-conservative option. Stable value funds can help smooth out the volatility in a diversified portfolio.

Another example, as investors age, they may start to shift more money into more- conservative investment choices, such as stable value funds, with less risk. In retirement, some investors even keep two to five years' worth of expenses in stable value funds, so they know that money will be there no matter what happens in equities.

For more information about MissionSquare Retirement's stable value fund, VT PLUS Fund, including its risks, click this link.

1A stable value fund may not be available in all retirement plans. Please log in to your MissionSquare Retirement retirement account to review your specific plan's fund lineup.

    Archives

    Return to top