Substitute Stable Value for Total Bond Fund
Substitute Stable Value for Total Bond Fund
Hello, opinions needed Thanks in advance.
I have a Stable Value Fund available to me within my 401K. Here is the history:
YTD (Daily)* +1.49%
1 Yr +2.74% 3 Yrs +2.69% 5 Yrs +2.50% 10 Yrs +2.59%
I am starting a 3 fund portfolio (VTSAX, VTIAX, and VBTLX). My question is, should I substitute the Stable Value Fund for a portion of the VBTLX. If so, what percentage would be appropriate?
Thanks,
Ron
I have a Stable Value Fund available to me within my 401K. Here is the history:
YTD (Daily)* +1.49%
1 Yr +2.74% 3 Yrs +2.69% 5 Yrs +2.50% 10 Yrs +2.59%
I am starting a 3 fund portfolio (VTSAX, VTIAX, and VBTLX). My question is, should I substitute the Stable Value Fund for a portion of the VBTLX. If so, what percentage would be appropriate?
Thanks,
Ron
Re: Substitute Stable Value for Total Bond Fund
If YTD = 1.49%, I believe you are being paid 3% for the year in the fund. That is a really good deal, and I would take it if I were you.
As for the allocation: I would suggest you allocate "Age  20" to "Age  10" to bonds, and given the good yield, half of that to the SV fund and remainder half to the Total Bond fund.
For example, my asset allocation is 70:30 (I turned 50 this year). If a SV value fund were available to me yielding 3%, I would allocate 15% of my portfolio to that, and another 15% to Total Bond fund.
As for the allocation: I would suggest you allocate "Age  20" to "Age  10" to bonds, and given the good yield, half of that to the SV fund and remainder half to the Total Bond fund.
For example, my asset allocation is 70:30 (I turned 50 this year). If a SV value fund were available to me yielding 3%, I would allocate 15% of my portfolio to that, and another 15% to Total Bond fund.
Re: Substitute Stable Value for Total Bond Fund
If you dig around in your plan documents (like in the area with your investment prospectuses, etc.,), you might be able to find somewhere that says what the SV is estimated to pay that quarter or year (they usually update quarterly or annually).
Without that, you can maybe check the trailing 30 day yield and multiply by 12 to get an estimated up to date idea on the current annualized yield. Calculating based on the current YTD can work too, but of course there's been a ton of interest rate action since the beginning of the year.
Without that, you can maybe check the trailing 30 day yield and multiply by 12 to get an estimated up to date idea on the current annualized yield. Calculating based on the current YTD can work too, but of course there's been a ton of interest rate action since the beginning of the year.
Re: Substitute Stable Value for Total Bond Fund
lakpr and McJedi,
Thanks for your responses and advice. I was thinking my portfolio would be 50% bonds (I'm 61 and retired). So, maybe 25% VBTLX and 25% Stable Value.
Ron
Thanks for your responses and advice. I was thinking my portfolio would be 50% bonds (I'm 61 and retired). So, maybe 25% VBTLX and 25% Stable Value.
Ron
Re: Substitute Stable Value for Total Bond Fund
You might want to look at what that SV fund is. It is hard to evaluate the idiosyncratic risk in a single fund in a single plan. You might check on how diversified they are across insurance companies, what kind of contracts those are, who actually manages the fund and so on. While there is little data on actual risk in such funds it seems prudent not to place most of one's wealth in one single such fund, maybe 20% of your portfolio, maximum?
Also, it is typical that payout on such funds follows interest rates with a lag in time meaning you might not expect that interest rate to be sustained over the next year or two and to lag any recovery in interest rates that might occur.
But, in general, well run SV funds are a legitimate opportunity in 401k plans.
Also, it is typical that payout on such funds follows interest rates with a lag in time meaning you might not expect that interest rate to be sustained over the next year or two and to lag any recovery in interest rates that might occur.
But, in general, well run SV funds are a legitimate opportunity in 401k plans.

 Posts: 8136
 Joined: Mon Sep 07, 2009 2:57 pm
 Location: Milky Way
Re: Substitute Stable Value for Total Bond Fund
As dbr suggests, the choice is not as simple as it seems. You are really talking about apples versus oranges. Because of the idiosyncratic risk of the SV fund, I have chosen to split my 401k fixedincome 50:50 between SV and bonds.
Best regards, Op 

"In the middle of difficulty lies opportunity." Einstein
Re: Substitute Stable Value for Total Bond Fund
All of my fixed income allocation is in a governmental 457 stable value fund backed by two highly rated insurance companies, yielding 3%.
cheers ... Mark 
"Our life is frittered away with detail. Simplify. Simplify." Henry David Thoreau 
[VTI, VXUS, VWITX, SV fund]
Re: Substitute Stable Value for Total Bond Fund
What difference?
25% is the answer, however.
cheers ... Mark 
"Our life is frittered away with detail. Simplify. Simplify." Henry David Thoreau 
[VTI, VXUS, VWITX, SV fund]
Re: Substitute Stable Value for Total Bond Fund
The point is that if you might have a concern over the possible riskiness of such a single fund in a single company plan you could be conservative about how much of your wealth to put there. So, for example, all of your fixed income portfolio might only be 10% of your wealth and the risk would be negligible because the chance of something going wrong is very small and the consequence is small. If the fixed income investments are 2/3 of your wealth then putting 100% of that in this fund would probably be a bad idea because even for a small risk the consequences would be large.
 Taylor Larimore
 Advisory Board
 Posts: 30316
 Joined: Tue Feb 27, 2007 8:09 pm
 Location: Miami FL
Re: Substitute Stable Value for Total Bond Fund
Ron:
Congratulations for starting your ThreeFund Portfolio with its many benefits.
In my opinion, both a stable value fund and VBTLX (Vanguard Total Bond Market) will do their job of providing safety in your portfolio. Pick one or the other for simplicity.
Read my "Simplicity" link below.
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Never underrate either the majesty of simplicity or its proven effectiveness as a longterm strategy for productive investing."
"Simplicity is the master key to financial success."  Jack Bogle
 abuss368
 Posts: 23774
 Joined: Mon Aug 03, 2009 2:33 pm
 Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
 Contact:
Re: Substitute Stable Value for Total Bond Fund
The Three Fund Portfolio is an excellent investment strategy. I would select Total Bond or Stable Value for simplicity. Both will provide safety and income to a portfolio.Oklahoma wrote: ↑Fri Jul 24, 2020 12:01 pm Hello, opinions needed Thanks in advance.
I have a Stable Value Fund available to me within my 401K. Here is the history:
YTD (Daily)* +1.49%
1 Yr +2.74% 3 Yrs +2.69% 5 Yrs +2.50% 10 Yrs +2.59%
I am starting a 3 fund portfolio (VTSAX, VTIAX, and VBTLX). My question is, should I substitute the Stable Value Fund for a portion of the VBTLX. If so, what percentage would be appropriate?
Thanks,
Ron
Simplicity is the master key to financial success!
John C. Bogle: “Simplicity is the master key to financial success."
Re: Substitute Stable Value for Total Bond Fund
Everyone,
Thanks very much for your help. I'm looking forward to completing the conversion of the complex mess I have to the '3 fund'. I'm glad I found this site. Wish I would have found it years ago!
Ron
Thanks very much for your help. I'm looking forward to completing the conversion of the complex mess I have to the '3 fund'. I'm glad I found this site. Wish I would have found it years ago!
Ron