Both the stable value fund and the money market fund present you with a safe way to investor money. However, these are two different types of investments and they both offer you something unique. Here are the basics of the stable value fund and the money market fund and why you might want to consider one over the other.
Stable Value Fund
A stable value fund was once only available through a company's retirement account. In recent years, this type of investment became available for those with an IRA as well. A stable value fund, as the name implies, is a fund that tries to maintain the value of your investment. You will be able to realize some type of a return on this investment, but it will not be substantial.
Stable value funds typically invest in guaranteed investment contracts or GICs. A guaranteed investment contracts is a contract that is set up between an insurance company and a retirement plan. This type of contract will guarantee a certain rate of return over the life of the contract. Therefore, this is designed to provide investors with a steady source of guaranteed income.
This type of investment will typically provide you with a slightly higher interest rate than what you can get from a money market fund. It will usually be a few percentage points higher and therefore, could be worth your consideration. However, you should know that this type of investment also carries with it a little more risk. Even though you are dealing with insurance company contracts, sometimes insurance companies go under. Insurance companies use their money to invest in other things as well. When they choose poor investments, this can sometimes result in devastating losses for their portfolio. Therefore, before you put your money into this type of investment, you will want to consider the risks that are involved.
Money Market Funds
A money market fund is one of the most common places to park money between larger investments. A money market fund will bring you a small and steady rate of return. Money market funds will invest in things like T-bills, commercial paper, and other very low risk types of investments.
Money market funds are offered by many different sources and are readily available to the public. Most brokerages will have a money market fund for their clients that need a place to invest after they sell their shares of a regular mutual fund. Therefore, many investors have experience with this type of fund and feel comfortable with it. While there is risk involved with this type of investment, it is about as low of a risk as you can take in the investment market.
Choosing a Fund
When looking at these two funds, you need to do a lot of potential research before choosing one. Regardless of the type that you choose, the individual fund could perform well. Both of these investments will provide you with a safer alternative than a traditional mutual fund. Therefore, you need to decide whether you want to take a slightly higher risk with a stable value fund or a few will rather play it safe with a money market fund.