401k stable value fund yielding 2%, is that realistic?

[corn18]

My 401k has a stable value fund. 5/3/1 returns are at 2.1%. 2020 was 2.0%. That to me is awesome so my 401k is all stable value (for other reasons as well). Considering every 3 month or less duration bond or money market fund is yielding 0% (at least FZDXX is), this seems awesome. Is it realistic to expect this to continue? How do they get that much return in this rate environment?

[Kenkat]

Usually the stable value funds are invested in an institutional account, often an insurance company, that represents their long term investment portfolio, usually heavy in bonds, with a super long term investment horizon. Rates offered will move slowly down when interest rates drop and slow up when they rise. There are usually restrictions around moving money in or out of the stable value fund, so you can’t just pull it all out at once, it’s meant to be a long term position. That does allow it to provide a relatively high fixed return long term compared to other investments guaranteed to not lose value.

[Stinky]

Usually the stable value funds are invested in an institutional account, often an insurance company, that represents their long term investment portfolio, usually heavy in bonds, with a super long term investment horizon. Rates offered will move slowly down when interest rates drop and slow up when they rise. There are usually restrictions around moving money in or out of the stable value fund, so you can’t just pull it all out at once, it’s meant to be a long term position. That does allow it to provide a relatively high fixed return long term compared to other investments guaranteed to not lose value.

Kenkat gave you a good answer.

If your stable value fund has been in the 2% range for a couple of years now, I would hope that they can stay there for a while longer.

2% is a pretty awesome return on fixed income these days, and I can understand the logic in having your entire fixed income allocation in your stable value fund.

[2pedals]

I have a very signification portion of my fixed income in a 401k stable value fund currently yielding about the 2.2%. The yield has been slowly dropping from prior to last year at about 2.8%. I expect it to gradually drop over time in the near future.

[houseofnine]

The SVF in my 401k pays 3% and I’m hoping to leave the money there even after separation from service.

[avenger]

Seems about right. Just checked my yield for the new quarter: 2.61%.
The entirety of my governmental 457 is in this stable value fund (~$260k).

[MrJedi]

Mine has been dropping like a rock, though at least slower than actual bonds. Just keep an eye on it like any other interest rate.

2020 Q1: 2.75%
2020 Q2: 2.40%
2020 Q3: 2.25%
2020 Q4: 2.05%
2021 Q1: 1.87%

[corn18]

Thanks everyone! I think I will stay the course then and max out the stable value fund. This also helps with future Roth conversions and RMDs by keeping the growth in my Roths and taxable (which are mostly equities).

[megabad]

My 401k has a stable value fund. 5/3/1 returns are at 2.1%. 2020 was 2.0%. That to me is awesome so my 401k is all stable value (for other reasons as well). Considering every 3 month or less duration bond or money market fund is yielding 0% (at least FZDXX is), this seems awesome. Is it realistic to expect this to continue? How do they get that much return in this rate environment?

Lol at the excitement over 2% return. No one can predict the future, but I would say it is a pretty good guess that once the current insurance contracts start cycling out, you will see a yield decrease. The contracts make stable value lag current interest rate movement by a little. Given the historical liquidity issues, I probably wouldn't want to have 100% of my assets in stable value unless it was G Fund but over the long run, not a bad conservative fixed income holding as long as the insurors are high quality.

[Money_Badger]

My wife has some money in TIAA traditional with a guaranteed rate of 3%.

[Wiggums]

My wife has some money in TIAA traditional with a guaranteed rate of 3%.

Nice!

[JoMoney]

Since there are other insurance company products out there guaranteeing >2% yields (i.e. https://www.blueprintincome.com/fixed-annuities ) I've kind of figured might not be that far out of line for insurance companies to offer similar kinds of rates in other ways...
I've started using the one in my 401k, also been yielding around 2% (used to be higher in the past)...