‘Stable’ Funds in Your 401(k) May Not Be
As Underlying Assets Drop, So Do Returns on Investments; Insurers Grow Leery of ‘Wraps’
Investors are pouring billions into stable-value funds — just as these popular retirement-plan investments are looking less stable than usual.
Stable-value funds, available only in 401(k)s and other tax-deferred savings plans, are designed to preserve capital and generate smooth, positive returns — hence the name. Consider that last year, the average stable-value fund returned 4.7%, according to Hueler Cos., a firm that tracks the industry, compared to a 33.8% plunge in the Dow Jones Industrial Average.
But now, stable-value funds are getting rattled by some of the same forces that have upended the broader financial system. These funds typically maintain a relatively steady “crediting rate” — essentially the yield investors receive — by investing in diversified bond portfolios and then using contracts from banks and insurers to protect against sharp market swings.
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