Most experts would respond: You should rebalance your 401k whenever it becomes out of balance. That can happen in up markets as easily as it does in down markets. For example, suppose you're aiming for a 60% stock/30% bond/10% cash position. (Not a recommendation, just a hypothetical example.)
However, there is a danger if a portfolio is weighted too heavily in lower-yielding investments such as stable value funds. The investor risks being squeezed by inflation down the road. A retirement income that seems sufficient initially can gradually become inadequate as the years pass and inflation mounts.
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.
These funds package a portfolio of high-quality, short- to intermediate-duration bonds with an insurance “wrapper.” This wrap, provided by an insurance company or a bank, guarantees principal and accumulated interest regardless of what happens in the market. Also, plan advisors overwhelmingly recommend stable value.
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.
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.
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.
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).
Should I put all my money in a high-yield savings account? Most HYSAs limit withdrawals to six per month, which could make it hard to access funds. And while the return is better than a traditional savings account, it won't provide the growth necessary for long-term wealth compared to stocks and 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.
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.
Examples of “competing funds” include money market funds, high quality short term bond funds, or other principal preservation options.
Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement. If you consider an average retirement savings of $426,000 for those in the 65 to 74-year-old range, the numbers obviously don't match up.
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.
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.
Investing in stable value is subject to many similar risks of investing in fixed income, including, but not limited to, credit risk, default risk, interest rate risk, issuer risk, liquidity risk, manager risk, market risk, regulatory risk, and tax and accounting risk.
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).
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.
The Stable Value Fund seeks to preserve principal and produce positive returns that move in the general direction of market interest rates.
Bond funds, money market funds, index funds, stable value funds, and target-date funds are lower-risk options for your 401(k).
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.