Stable Value Fund as “bond” allocation

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houseofnine
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Stable Value Fund as “bond” allocation

Post by houseofnine »

Hello,

I have a stable value fund in my 401k that pays 3%. My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.

My questions are:

Is it incorrect to consider the SVF a bond or (future) fixed income allocation?

If I do a Roth conversion ladder after separating from my employer, will I have trouble maintaining my AA? In other words, if I invest the former SVF in growth (as it will be in a Roth), I will need to satisfy my bond allocation elsewhere, no?

Thanks in advance!
BogleBoogie
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Re: Stable Value Fund as “bond” allocation

Post by BogleBoogie »

This question calls for a bit of an opinionated answer. I am in a similar situation and consider my SVF to be the bond portion of my 401k. In fact, I have 1/2 SVF and 1/2 bonds for my "bond portion." Just a preference, I like to diversify and my rate is similar to yours (very good).
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Re: Stable Value Fund as “bond” allocation

Post by tibbitts »

houseofnine wrote: Fri Oct 30, 2020 7:08 pm Hello,

I have a stable value fund in my 401k that pays 3%. My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.

My questions are:

Is it incorrect to consider the SVF a bond or (future) fixed income allocation?

If I do a Roth conversion ladder after separating from my employer, will I have trouble maintaining my AA? In other words, if I invest the former SVF in growth (as it will be in a Roth), I will need to satisfy my bond allocation elsewhere, no?

Thanks in advance!
3% is exceptional for stable value. I would put 100% of my fixed allocation into it. Well, you can't invest in a 401k fund, stable vale or otherwise, if you're no longer invested in that 401k, so yes you would have to find some other fixed income.
justglassin
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Re: Stable Value Fund as “bond” allocation

Post by justglassin »

3% sounds outstanding. What is the ticker?
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Re: Stable Value Fund as “bond” allocation

Post by tibbitts »

justglassin wrote: Fri Oct 30, 2020 7:27 pm 3% sounds outstanding. What is the ticker?
A stable value fund typically doesn't have a ticker and is specific to a particular qualified retirement plan. Publicly-available annuities may have a stable value option specific to that annuity product.
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

justglassin wrote: Fri Oct 30, 2020 7:27 pm 3% sounds outstanding. What is the ticker?
Perhaps I am using the wrong terminology. The 401k is through MassMutual and the fund is referred to as SF Guaranteed. No ticker. Like most funds of its type, it contains a mix of bonds, stocks, derivatives, etc. The “guaranteed” means nothing as there is still risk, but better than your average bond fund methinks.
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Re: Stable Value Fund as “bond” allocation

Post by Stinky »

houseofnine wrote: Fri Oct 30, 2020 7:47 pm
justglassin wrote: Fri Oct 30, 2020 7:27 pm 3% sounds outstanding. What is the ticker?
Perhaps I am using the wrong terminology. The 401k is through MassMutual and the fund is referred to as SF Guaranteed. No ticker. Like most funds of its type, it contains a mix of bonds, stocks, derivatives, etc. The “guaranteed” means nothing as there is still risk, but better than your average bond fund methinks.
Mass Mutual is an exceptionally strong company.

I wouldn’t mind having 100% of my fixed income allocation invested in a fund backed by MM.
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Re: Stable Value Fund as “bond” allocation

Post by Peter Foley »

We have used a stable value fund as the principal component of our bond allocation. My wife's pays in the neighborhood of the OP's. Older deposits had a minimum rate of 4% and new deposits have a minimum of 2.5%. While we have moved some holdings to an IRA post retirement we have kept the stable value funds in the original account.
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Re: Stable Value Fund as “bond” allocation

Post by MishkaWorries »

My 457 account is admistered by a large insurance company too. We have a fixed/stable value fund that pays a guarantee 4% per year. In that account I'm 100% in the fixed/stable value. I max out my contributions so every two weeks I contribute $1,000 dollars to my 457 and transfer $1,000 from bond fund to S&P 500 in my other retirement accounts.

The only catch is I can't transfer more than 20% per year out from the fixed/stable value. So as I get closer to retirement, I'm going to have to plan ahead.
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Re: Stable Value Fund as “bond” allocation

Post by Rcf »

I have used a stable value fund for my fixed income allocation for several years. The rate is reset yearly. It appears to be very low risk and I have no limitations on withdrawals.
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

Stinky wrote: Fri Oct 30, 2020 7:55 pm
houseofnine wrote: Fri Oct 30, 2020 7:47 pm
justglassin wrote: Fri Oct 30, 2020 7:27 pm 3% sounds outstanding. What is the ticker?
Perhaps I am using the wrong terminology. The 401k is through MassMutual and the fund is referred to as SF Guaranteed. No ticker. Like most funds of its type, it contains a mix of bonds, stocks, derivatives, etc. The “guaranteed” means nothing as there is still risk, but better than your average bond fund methinks.
Mass Mutual is an exceptionally strong company.

I wouldn’t mind having 100% of my fixed income allocation invested in a fund backed by MM.
Thanks for the input. To MM’s credit, they haven’t reduced the % so far. Unfortunately, the other options in my 401k are managed funds with high ER, so SVF sounds like the clear winner.
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cinghiale
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Re: Stable Value Fund as “bond” allocation

Post by cinghiale »

Please clarify something, houseofnine...

You mention that “My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.” I assume that means the SVF makes up 13% of your total portfolio, rather than just 13% of the 20% that is in bonds, which would only constitute 2.6% of your total portfolio. Do I have that right?

I have TIAA Traditional in my 403 plan and it also delivers around 3.15% per year. As previous posters have mentioned, that’s a sweet deal, and should stay sweet for a number of years to come. I certainly count it as part of my bond allocation.

Whatever transitions or conversions you do in the near future, I would try to keep that SVF holding. It includes a combination of return and predictably that will be hard to match if current trends hold. Think twice before forfeiting it.
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Re: Stable Value Fund as “bond” allocation

Post by Call_Me_Op »

I wouldn't put 100% of FI in stable value because it has idiosyncratic risk. I split my tax-deferred FI 50-50 between SV and bonds.
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

cinghiale wrote: Sat Oct 31, 2020 8:05 am Please clarify something, houseofnine...

You mention that “My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.” I assume that means the SVF makes up 13% of your total portfolio, rather than just 13% of the 20% that is in bonds, which would only constitute 2.6% of your total portfolio. Do I have that right?

I have TIAA Traditional in my 403 plan and it also delivers around 3.15% per year. As previous posters have mentioned, that’s a sweet deal, and should stay sweet for a number of years to come. I certainly count it as part of my bond allocation.

Whatever transitions or conversions you do in the near future, I would try to keep that SVF holding. It includes a combination of return and predictably that will be hard to match if current trends hold. Think twice before forfeiting it.
Correct, 13% of the entire portfolio. As an added wrinkle, I am hoping to retire early-ish in the next few years and was hoping to do a Roth conversion ladder. Sounds like I’ll need to decide between maintaining the SVF and selling taxable for income, or converting the SVF and finding another fixed income investment when the time comes. Thanks for the feedback! BTW - are you still ex-US? How’s it going?
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Re: Stable Value Fund as “bond” allocation

Post by Stinky »

houseofnine wrote: Sat Oct 31, 2020 8:38 am As an added wrinkle, I am hoping to retire early-ish in the next few years and was hoping to do a Roth conversion ladder. Sounds like I’ll need to decide between maintaining the SVF and selling taxable for income, or converting the SVF and finding another fixed income investment when the time comes.
Rolling from 401(k) to IRA is likely not an “all or nothing” thing.

Let’s say that that you have $100k in each of your 401(k) and taxable accounts, and that you want to have an overall 40% in fixed income. In that case, assuming it’s permitted by your plan, you could roll over $20k from 401(k) to IRA, leaving your entire fixed income allocation in stable value inside 401(k).
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Re: Stable Value Fund as “bond” allocation

Post by cinghiale »

houseofnine asked,
BTW - are you still ex-US? How’s it going?
Kind of you to remember. Kind of you to ask.

Still in Europe. Just about to hit the five-year mark. All is well here, though we live in a country that is struggling with the pandemic. Lots of time spent beach walking is keeping us centered and upbeat.
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

Stinky wrote: Sat Oct 31, 2020 8:52 am
houseofnine wrote: Sat Oct 31, 2020 8:38 am As an added wrinkle, I am hoping to retire early-ish in the next few years and was hoping to do a Roth conversion ladder. Sounds like I’ll need to decide between maintaining the SVF and selling taxable for income, or converting the SVF and finding another fixed income investment when the time comes.
Rolling from 401(k) to IRA is likely not an “all or nothing” thing.

Let’s say that that you have $100k in each of your 401(k) and taxable accounts, and that you want to have an overall 40% in fixed income. In that case, assuming it’s permitted by your plan, you could roll over $20k from 401(k) to IRA, leaving your entire fixed income allocation in stable value inside 401(k).
I thought of this option. Sadly, my plan does not allow for in service distributions before 59-1/2. I’ll likely be retired before then, assuming I’m not relieved of my duties first. :shock:
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

cinghiale wrote: Sat Oct 31, 2020 9:35 am
houseofnine asked,
BTW - are you still ex-US? How’s it going?
Kind of you to remember. Kind of you to ask.

Still in Europe. Just about to hit the five-year mark. All is well here, though we live in a country that is struggling with the pandemic. Lots of time spent beach walking is keeping us centered and upbeat.
Glad to hear. You’re an inspiration to me for sure!
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houseofnine
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Re: Stable Value Fund as “bond” allocation

Post by houseofnine »

Call_Me_Op wrote: Sat Oct 31, 2020 8:20 am I wouldn't put 100% of FI in stable value because it has idiosyncratic risk. I split my tax-deferred FI 50-50 between SV and bonds.
Can you explain what you mean by “idiosyncratic risk”?
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Re: Stable Value Fund as “bond” allocation

Post by cas »

houseofnine wrote: Sat Oct 31, 2020 9:58 am
Call_Me_Op wrote: Sat Oct 31, 2020 8:20 am I wouldn't put 100% of FI in stable value because it has idiosyncratic risk. I split my tax-deferred FI 50-50 between SV and bonds.
Can you explain what you mean by “idiosyncratic risk”?
Here's some non-comprehensive discussion of some idiosyncratic risk from a Boglehead's thread in 2018:

Heavy Loss in Stable Value Fund of 401k investments
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Re: Stable Value Fund as “bond” allocation

Post by TonyDAntonio »

I finally moved all of my 401k money to a 3% earning SVF. An equal amount (or probably more) of money is in ibonds, savings bonds and MM. I'm about 65/35 allocation and retired.
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Re: Stable Value Fund as “bond” allocation

Post by ruralavalon »

houseofnine wrote: Fri Oct 30, 2020 7:08 pm Hello,

I have a stable value fund in my 401k that pays 3%. My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.

My questions are:

Is it incorrect to consider the SVF a bond or (future) fixed income allocation?

If I do a Roth conversion ladder after separating from my employer, will I have trouble maintaining my AA? In other words, if I invest the former SVF in growth (as it will be in a Roth), I will need to satisfy my bond allocation elsewhere, no?

Thanks in advance!
In my opinion the better terminology is "fixed income allocation", rather than "bond allocation ". Under either name the primary purpose is reducing portfolio volatility.

Fixed income can include I-bonds, bond funds, CDs, Stable Value funds, money market funds, savings accounts, etc. All can help reduce portfolio volatility.
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Re: Stable Value Fund as “bond” allocation

Post by ruralavalon »

houseofnine wrote: Sat Oct 31, 2020 9:51 am
Stinky wrote: Sat Oct 31, 2020 8:52 am
houseofnine wrote: Sat Oct 31, 2020 8:38 am As an added wrinkle, I am hoping to retire early-ish in the next few years and was hoping to do a Roth conversion ladder. Sounds like I’ll need to decide between maintaining the SVF and selling taxable for income, or converting the SVF and finding another fixed income investment when the time comes.
Rolling from 401(k) to IRA is likely not an “all or nothing” thing.

Let’s say that that you have $100k in each of your 401(k) and taxable accounts, and that you want to have an overall 40% in fixed income. In that case, assuming it’s permitted by your plan, you could roll over $20k from 401(k) to IRA, leaving your entire fixed income allocation in stable value inside 401(k).
I thought of this option. Sadly, my plan does not allow for in service distributions before 59-1/2. I’ll likely be retired before then, assuming I’m not relieved of my duties first. :shock:
In any plan an in-service distribution before age 59.5 results in income tax plus the 10% penalty unless some exception (like hardship) applies. IRS FAQs, Distributions (Withdrawals).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
unbiased
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Re: Stable Value Fund as “bond” allocation

Post by unbiased »

I also have a SV fund in my 401K and allocate about 10% to it. The yield won't be high forever on mine, but it will take longer for it to go down (with T. Rowe Price). Only 2%, but still much better than what's out there.

The disadvantage? No zigging when stocks zag, so it offers less portfolio diversification and rebalancing opportunities. Still, a unique product and might be worth hanging out in for a while until bonds are more compelling.
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Re: Stable Value Fund as “bond” allocation

Post by abuss368 »

houseofnine wrote: Fri Oct 30, 2020 7:08 pm Hello,

I have a stable value fund in my 401k that pays 3%. My AA is roughly 80/20, with the SVF representing 13% of the “bond” portion.

My questions are:

Is it incorrect to consider the SVF a bond or (future) fixed income allocation?

If I do a Roth conversion ladder after separating from my employer, will I have trouble maintaining my AA? In other words, if I invest the former SVF in growth (as it will be in a Roth), I will need to satisfy my bond allocation elsewhere, no?

Thanks in advance!
Fixed income is better called “safe money”. I would consider cash, bonds, CDs, Money Markets, and so forth.
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Re: Stable Value Fund as “bond” allocation

Post by MikeG62 »

houseofnine wrote: Fri Oct 30, 2020 7:08 pm
...Is it incorrect to consider the SVF a bond or (future) fixed income allocation?
I don't think it is incorrect at all. I consider all of my CD's as part of my fixed income allocation. Not saying I'd put 100% of my FI allocation in the SV fund, but I would certainly put a decent portion of it in there given the environment we are in.
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Re: Stable Value Fund as “bond” allocation

Post by avenger »

I do the same. Also have an SV field yielding nearly 3%. It accounts for about 2/3rds of my bond allocation.
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