Gold might be the oldest and most universally accepted hedge against stock market crashes, inflation, currency devaluation, and general economic or geopolitical turmoil. Precious metals generally, and gold in particular, are seen not just as investable assets but as a true store of value in good times and bad.
A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment. All investing is subject to risk, including the possible loss of the money you invest.
Perhaps the biggest limitation of stable value funds is their limited availability. They are generally only available to 401(k) plan participants of employers who offer these funds within their plans. Another key point to remember is that these funds are stable in nature, but not guaranteed.
Unlike money market accounts, stable value funds like the GSI are not built to pivot quickly along with changes in interest rates. Stable value fund crediting rates typically take longer to respond to changes in market interest rates—both during times of rising and falling interest rates.
In times of recession or stock market volatility, stable value funds are guaranteed. While many other investments drop in value, the owner of a stable bond fund continues to receive the agreed-upon interest payments and never loses principal regardless of the state of the economy.
Stable value funds are often compared to money market funds since both are similarly low-risk. Here's a look at historic returns for both. The 15-year annualized return for stable value funds as of March 2023 was 2.99%, according to the non-profit group Stable Value Investment Association (SVIA).
The fund is not insured or guaranteed by any governmental agency. Funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest- rate risk than short-term bonds.
Stable value returns3 have also outpaced inflation in more than 85% of those rolling 5-year quarterly periods over that same 25-year span, with most of the underperformance owing largely to the post-pandemic spike in inflationary pressures that saw annualized rates of inflation exceeding 8% for much of 2022.
Investors choose stable value because of the reliable long-term returns it provides for the portion of their savings that they don't want to expose to significant risk. Stable value funds allow investors to earn returns similar to short or intermediate bond funds with lower volatility.
Participant withdrawals and transfers are freely permitted daily according to plan provisions. Stable value funds from The Standard provide participants with full book value liquidity for benefit payments (death, disability or retirement) and transfers to other investment options.
Examples of “competing funds” include money market funds, high quality short term bond funds, or other principal preservation options.
About Vanguard
Within the industry, Vanguard is a leader in offering passively managed mutual funds and ETFs. It is known for its: Stability.
Do you lose all the money if the stock market crashes? No, a stock market crash only indicates a fall in prices where a majority of investors face losses but do not completely lose all the money. The money is lost only when the positions are sold during or after the crash.
Stable value funds are designed to provide a guarantee of principle and accumulated interest, ensuring that participants will not experience negative returns. In short: steady returns with protection against losses.
Real estate generally does a good job of keeping up with inflation, and you can add commercial real estate exposure to your portfolio through the stock market via real estate investment trusts, or REITs.
However, it is important to remember that rising rates also means eventually higher crediting rates for stable value products. For older retirement investors looking for capital preservation, stable value may offer shelter from market volatility while potentially providing an attractive income.
Key Takeaways
Stable value funds are a portfolio of bonds with an insurance guarantee. Over 80% of employer-sponsored 401(k) plans offer stable funds. Stable value funds offer safety for risk-averse savers, but returns are generally low.
The Stable Value Fund seeks to preserve principal and produce positive returns that move in the general direction of market interest rates.
The Fund primarily consists of a diversified portfolio of Stable Value Investment Contracts (Investment Contracts) issued by life insurance companies, banks and other financial institutions, the performance of which may be predicated on underlying fixed income investments.
- Daily liquidity: Investors can withdraw their funds from the Stable Value Fund on a daily basis. This option provides maximum liquidity, but it may come with certain restrictions, such as minimum withdrawal amounts or redemption fees.
How much do you need? Everybody has a different opinion. Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000.
A provision in a stable value investment option that requires any transfer a participant makes from the stable value investment option to a competing option to first be directed to any other investment option not designated as a competing option for a period of time (usually 90 days).