Substitute Stable Value for Total Bond Fund

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Oklahoma
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Joined: Wed Jun 10, 2020 10:22 am

Substitute Stable Value for Total Bond Fund

Post by Oklahoma »

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
lakpr
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Re: Substitute Stable Value for Total Bond Fund

Post by lakpr »

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.
MrJedi
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Re: Substitute Stable Value for Total Bond Fund

Post by MrJedi »

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.
Topic Author
Oklahoma
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Re: Substitute Stable Value for Total Bond Fund

Post by Oklahoma »

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
dbr
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Re: Substitute Stable Value for Total Bond Fund

Post by dbr »

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.
Call_Me_Op
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Re: Substitute Stable Value for Total Bond Fund

Post by Call_Me_Op »

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 fixed-income 50:50 between SV and bonds.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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avenger
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Re: Substitute Stable Value for Total Bond Fund

Post by avenger »

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]
dbr
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Re: Substitute Stable Value for Total Bond Fund

Post by dbr »

avenger wrote: Sat Jul 25, 2020 10:27 am All of my fixed income allocation is in a governmental 457 stable value fund backed by two highly rated insurance companies, yielding 3%.
The difference is in what fraction of your net worth is allocated there.
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avenger
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Re: Substitute Stable Value for Total Bond Fund

Post by avenger »

dbr wrote: Sat Jul 25, 2020 10:30 am
avenger wrote: Sat Jul 25, 2020 10:27 am All of my fixed income allocation is in a governmental 457 stable value fund backed by two highly rated insurance companies, yielding 3%.
The difference is in what fraction of your net worth is allocated there.


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]
dbr
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Re: Substitute Stable Value for Total Bond Fund

Post by dbr »

avenger wrote: Sat Jul 25, 2020 10:53 am
dbr wrote: Sat Jul 25, 2020 10:30 am
avenger wrote: Sat Jul 25, 2020 10:27 am All of my fixed income allocation is in a governmental 457 stable value fund backed by two highly rated insurance companies, yielding 3%.
The difference is in what fraction of your net worth is allocated there.


What difference?

25% is the answer, however.
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.
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Taylor Larimore
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Re: Substitute Stable Value for Total Bond Fund

Post by Taylor Larimore »

Oklahoma wrote: Fri Jul 24, 2020 12:01 pm
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
Ron:

Congratulations for starting your Three-Fund 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 long-term strategy for productive investing."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Substitute Stable Value for Total Bond Fund

Post by abuss368 »

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
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.

Simplicity is the master key to financial success!
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
Oklahoma
Posts: 6
Joined: Wed Jun 10, 2020 10:22 am

Re: Substitute Stable Value for Total Bond Fund

Post by Oklahoma »

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
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