Evaluating Stable Value Funds

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vaylie
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Joined: Tue Mar 22, 2022 7:51 pm

Evaluating Stable Value Funds

Post by vaylie »

So, I've read the wiki entry on stable value funds, but it's still not entirely clear to me how I can evaluate whether a stable value fund is considered good or not, and what the different % returns mean. For example, my 457b right now offers this stable value fund (pdf), which has a crediting rate of 1.77% and 2%+ annualized rate of return for durations longer than 5 years. It also has what seems to me a high 0.3% expense ratio.

How would I evaluate whether this is a good option for the fixed income portion of my asset allocation, as compared to say, buying treasury bills or treasury notes?
placeholder
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Re: Evaluating Stable Value Funds

Post by placeholder »

It appears to be a pretty standard fund with synthetic gics meaning that the crediting rate will lag the increase in rates but it should be increasing eventually.
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Stinky
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Re: Evaluating Stable Value Funds

Post by Stinky »

I agree. This looks like a pretty standard stable value fund.

The “wrap” contracts are provided by large, solid insurance companies. Those are the contracts that ensure that the fund will maintain a stable value.

The crediting rate is pretty much middle of the road, compared to other SV funds reported in this Forum. The expense ratio can be ignored - what is important is the credited rate.

The advantage of this fund is the stability of the principal value at all times, especially if/when interest rates go up. The negative is that there may be “fixed income” alternatives that pay a higher rate at the current time.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
student
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Re: Evaluating Stable Value Funds

Post by student »

I think to properly evaluate whether this is good, you should find the answer to the following.

1) Does it have any restriction in transferring money out?
2) Does the insurance wrapper only protect the principal or does it guarantee a minimum interest rate? (Yes, technically protecting the principal is the same as guaranteeing a minimum of 0% rate.)
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Stinky
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Re: Evaluating Stable Value Funds

Post by Stinky »

student wrote: Mon May 16, 2022 6:43 am I think to properly evaluate whether this is good, you should find the answer to the following.

1) Does it have any restriction in transferring money out?
2) Does the insurance wrapper only protect the principal or does it guarantee a minimum interest rate? (Yes, technically protecting the principal is the same as guaranteeing a minimum of 0% rate.)
Here are the restrictions in making transfers, from the first page of the pdf.

Based on what I’ve seen, I think these are fairly typical restrictions for a stable value fund.

Transfer Information
Direct transfers from any investment option offered under the Plan to the SMART Capital Preservation Fund are allowed. However, direct transfers from the SMART Capital Preservation Fund to the TD Ameritrade SDB Money Market is not permitted. If a transfer is processed from the SMART Capital Preservation Fund to another core investment option offered under the Plan, no trades may be placed to the TD Ameritrade SDB Money Market for 90 days.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
student
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Re: Evaluating Stable Value Funds

Post by student »

Stinky wrote: Mon May 16, 2022 7:40 am
student wrote: Mon May 16, 2022 6:43 am I think to properly evaluate whether this is good, you should find the answer to the following.

1) Does it have any restriction in transferring money out?
2) Does the insurance wrapper only protect the principal or does it guarantee a minimum interest rate? (Yes, technically protecting the principal is the same as guaranteeing a minimum of 0% rate.)
Here are the restrictions in making transfers, from the first page of the pdf.

Based on what I’ve seen, I think these are fairly typical restrictions for a stable value fund.

Transfer Information
Direct transfers from any investment option offered under the Plan to the SMART Capital Preservation Fund are allowed. However, direct transfers from the SMART Capital Preservation Fund to the TD Ameritrade SDB Money Market is not permitted. If a transfer is processed from the SMART Capital Preservation Fund to another core investment option offered under the Plan, no trades may be placed to the TD Ameritrade SDB Money Market for 90 days.
Right. This is fairly standard.
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