An In-Depth Look at Stable Value Funds

A stable value fund is a type of investment that is often used in retirement portfolios. It presents investors with some unique features and benefits. Here are the basics of the stable value fund.

Stable Value Funds

A stable value fund is a type of investment that is commonly found in qualified retirement plans such as the 401(k). At one time, this was the only place that you would be able to find a stable value fund to invest in. However, in recent years, they have also become available in IRAs.

This is a type of mutual fund that strives to maintain a constant value. This feature is very similar to money market accounts. Most stable value funds try to keep a steady share price of $1. Stable value funds strive to provide investors with a regular payment of interest regardless of what goes on in the market. As the name implies, they try to provide a stable value and return for the investors.

What They Invest in

Most stable value funds invest in GICs. "GIC" stands for "guaranteed investment contract," and it is provided by an insurance provider. These GICs are basically a contract between an insurance company and a retirement plan that is designed to guarantee a certain amount of return for the investors.

These GICs invest heavily in corporate and government bonds. The bonds tend to have a short period until maturation. In most cases, the bonds are set to mature within 2 to 3 years. As part of the GIC, an insurance wrapper is also included. This is basically a form of protection against bad performance from the bonds. For example, if the bonds do not bring in a specific amount of return, the insurance company will pitch in to make up the difference. If the bonds do exceptionally well, the insurance company will take a larger percentage of the profit from the investments. In this way, the GICs can provide portfolios with a guaranteed rate of return over the long term.

Who Should Invest

The idea of bringing in a certain amount of return without much risk can be appealing. However, this type of investment is not really for every type of investor. If you are getting close to retirement, this can be a perfect investment for you. You can put a large percentage of your retirement funds into a stable value fund, and you will not have to worry about large market fluctuations affecting your money. You will be able to bring in a steady return on your investment and protect your assets.

If you are still many years away from retirement, this type of investment may not be for you just yet. Although the stable value fund can provide you with steady returns, you should most likely look for something with a higher rate of return. You could do better than this with mutual funds or other investments.

blog comments powered by Disqus