What is a 'Stable Value Fund'

A stable value fund is an investment vehicle found in company retirement plans. Stable value funds are comprised of mostly synthetic guaranteed investment certificates (GICs), also known as wrapped bonds, because of their inherent stability. These bonds can be short or intermediate term with longer maturities than other choices such as money market funds; they are paired, or wrapped, with insurance contracts to guarantee a specific minimum return.

BREAKING DOWN 'Stable Value Fund'

In times of economic recession or stock market volatility, stable value funds can be one of the most valuable investments. While many other investment returns are much lower in hard times, stable value funds remain just that, stable. The owner of the investment continues to receive the agreed-upon interest rate and the full principal regardless of the state of the economy. Generally speaking, funds and pooled investments tend to be less risky as the investment is not reliant on one specific company or stock, etc.

How Does a Stable Value Fund Work?

A stable value fund is an investment option available primarily to qualified retirement plans such as a 401(k) plan. It is a managed portfolio of highly rated corporate or government, short-term and intermediate-term bonds with a principal protection wrapper provided by a life insurance company. The objective of the fund is to generate a stable yield while preserving investor principal. Historically, these funds have been able to generate yields that have outperformed the typical money market fund at no greater risk. They do this by managing a portfolio of bonds just like any other bond fund, except any losses of principal resulting from fluctuating bond prices are made up by the insurance company wrapper.

Stable Value Fund Role in a Portfolio

Stable value funds are an appealing alternative to lower-yielding vehicles such as money market funds for the portion of a portfolio used to counter market volatility. Stable value funds can provide the essential elements of balance and stability in a portfolio weighted to some degree in growth investments. However, if a portfolio is weighted too heavily in lower-yielding investments such as stable value funds, inflation risk, interest rate risk and longevity risk, or the risk of outliving your income, the portfolio can be just as problematic as with market risk from stock price fluctuations. Investors also need to consider the expenses associated with stable value funds. Historically, their fees have been in the low range as compared to mutual funds. However, insurance companies have been increasing their fees due to the increased risk they are assuming in a more volatile market.

  1. Income Fund

    A type of mutual fund that emphasizes current income, either ...
  2. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  3. Equity Fund

    A mutual fund that invests principally in stocks. It can be actively ...
  4. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  5. Fund Of Funds

    A mutual fund that invests in other mutual funds. This method ...
  6. Protected Fund

    A type of mutual fund that guarantees an investor at least the ...
Related Articles
  1. Financial Advisor

    Stable Value Funds: Risk Less And Earn More

    Stable value funds can provide higher yields and lower risk.
  2. Investing

    New Money Market Regulations: What You Need to Know

    New money market regulations set to go into effect in October will change the face of an important investment option for retirement accounts forever.
  3. Financial Advisor

    Money Fund Alternatives for 401(k) Plan Clients

    Upcoming changes to money market fund rules may trigger changes in options offered by many 401(k) plans. Here are some alternatives to consider.
  4. Financial Advisor

    Protect Mutual Funds From a Volatile Market

    Learn about the best ways to invest in mutual funds, including which types of funds are safest, while still protecting your investment from market volatility.
  5. Investing

    Bond Funds Boost Income, Reduce Risk

    These funds can provide stable returns for those who depend on their investment income.
  6. Managing Wealth

    Should Balanced Funds Be Part Of Your Portfolio?

    Find out why you should include balanced funds in your portfolio, including the importance of customizability, diversification and professional management.
  7. Investing

    8 Fund Types To Use In A Recession

    When the economy blows up, these funds offer some protection from major losses.
  8. Investing

    Investing in High-Yield Corporate Bond Funds

    High-yield corporate bond funds provide an interesting investment option, particularly for private investors chasing returns and a broad diversification.
  9. Investing

    Make Sure You Avoid Adding These Mutual Funds to Your 401(k)

    Find out which five types of mutual funds you should avoid in your 401(k), including why buying this year's hottest fund is likely a losing bet.
  1. Can mutual funds only hold bonds?

    Find out which mutual funds include only bonds in their portfolios. Learn why some funds invest in different types of bonds ... Read Answer >>
  2. Can mutual funds only hold stocks?

    Learn about which types of mutual funds consist of only stocks, which may include stocks in addition to other assets and ... Read Answer >>
  3. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  4. Do mutual funds pay interest?

    Find out how and why some mutual funds pay interest, and which types of funds make regular dividend distributions to shareholders ... Read Answer >>
  5. How can I find tax-exempt mutual funds?

    Learn about finding tax-free mutual funds at major investment firms, including how tax-free funds work and what you should ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center