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Stable Value Funds: Safe or Constricting?

May 28, 2012

There has been a lot of discussion about stable value funds lately, and I think it is worth taking a closer look at them to see if they represent a wise investment choice going forward. Stable value funds are a common feature in company retirement plans. Essentially they are a bundle of bonds combined with an insurance policy inside a 401(k) plan. While they are considered to be more stable than some other investment vehicles and they performed well during the 2008 crisis, these types of funds have generally been generating lower returns recently. The fact that they have a relatively strong track record has definitely upped their profile – and appeal – but the fact that some 401(k)s have seen a nice return with this product in the past should not necessarily impact investment decisions in the future. There are some reasons to think that the stable value fund honeymoon might be over. For one, administrative costs have been rising. We are seeing some higher fees as several companies that used to operate in this space have been exiting the marketplace, and we are also seeing increased restrictions on withdrawals. One important consideration for anyone thinking of allocating assets into a stable invest fund is to check and see if there are any such restrictions associated with the fund before pulling the trigger. As for returns, what used to be consistently around 4% is now more down closer to 2.75%, making this option a little bit less attractive. With returns dropping and some complicating factors that now need to be considered, account holders may find that it is worthwhile to re-evaluate their position. The bottom line is that stable value funds are still not a bad place to be, by any means, but it will pay off (both literally and figuratively) for you to watch the returns carefully in the months and years ahead.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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