This depends on your risk tolerance, and how long you have until you retire. Stable value funds are ideal for investors nearing retirement. They are not designed for growth. Most advisors recommend allocating no more than 15% to 20% of one's assets into these funds.
You could move a large percentage of your 401K into the money market portion of the fund or stable value fund area. If you are losing sleep, place 90% or more in a stable value fund. Your expense ratio may increase, but the chances of a recession taking a ``significant'' percentage of your 401K will be reduced.
If you're saving for something you'll need the money for in less than three to five years, saving in a money market fund may make sense for you. Money market funds are ideal for short-term saving because they invest in highly liquid securities with the objective of capital preservation and income.
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.
While stable value funds provide a return advantage when rates are stable or falling, they can be a disadvantage when they rise. “Many stable value funds are yielding less than money markets because of high interest rate increases since early 2022,” Riter said.
Fixed Income and Treasurys
Treasurys are considered to be virtually risk-free because they're backed by the full faith and credit of the U.S. government. Here's why they're valuable during market crashes: Low risk: Treasurys have minimal default risk, making them a reliable safe haven.
The average money market rate is less than 1 percent, but you can probably do better. Let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn about 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.
Should you invest when the market is down? Yes. You should also invest when the market is up. And don't forget to invest when it holds steady as well.
Cash. Cash and cash equivalents are the lowest risk, most liquid asset class, meaning that these assets can be easily accessed and are designed not to incur any significant losses. Examples of cash and cash equivalents include savings accounts, money market funds, and CDs (certificates of deposit).
Your investment is put into various asset options, including stocks. The value of those stocks is directly tied to the stock market's performance. This means that when the stock market is up, so is your investment, and vice versa. The odds are the value of your retirement savings may decline if the market crashes.
The reality is that stocks do have market risk, but even those of you close to retirement or retired should stay invested in stocks to some degree in order to benefit from the upside over time. If you're 65, you could have two decades or more of living ahead of you and you'll want that potential boost.
Don't “panic sell” your investments
The stock market historically has bounced back from short-term declines, so pulling your investments could mean missing out on some of the market's best days. Staying invested is usually safer than trying to time the market. Selling is how you realize losses in your account.
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.
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.
About Vanguard
Within the industry, Vanguard is a leader in offering passively managed mutual funds and ETFs. It is known for its: Stability.
On average, it takes around five months for a correction to bottom out, but once the market reaches that point and starts to turn positive, it recovers in around four months. Stock market crashes, however, usually take much longer to fully recover.
Bottom line. Money market accounts are an attractive option to consider if you're seeking a savings product that earns interest, offers more withdrawal options and is insured as long as you're within federal insurance limits and guidelines.
For the foreseeable future, you won't find any banks that offer 7% APY on savings accounts. However, you can find some credit unions that pay 7% or more on checking accounts. Before opening an account, take a close look at the terms and conditions to determine whether you can earn the advertised rate.
Invest in Dividend Stocks
To make $5,000 per month, you would need a portfolio of dividend stocks paying out at least a 5–6% dividend yield. For example, if you had a portfolio worth $100,000 paying out a 5% dividend yield, that would generate $5,000 in annual passive income.
Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
Money market and stable value funds are fancy words for cash, a low risk, low return investment, and the return from cash usually lags behind inflation. This means that a 401(k) in these safe investments will probably decline in value over time.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.