Stable Value Funds: A Layer of Protection

Stable value funds* contain a diversified portfolio of fixed-income securities designed to help reduce overall portfolio risk while earning returns that mirror those of an intermediate-term bond fund. Stable value funds offer minimal volatility and low correlation to other asset classes.

The Benefits

Stable value funds typically invest in high-quality short-term and intermediate-term government and corporate bonds. Investors receive specified interest payments. Although bonds in the fund won’t increase dramatically in value over time, the expectation is that they won’t lose principal.

Stable value funds can be used to help reduce the volatility of a portfolio. They represent a possible alternative to lower yielding investments, such as money market funds, since stable value funds tend to offer higher returns.

Two Components

Stable value funds are composed of two parts: bonds and insurance contracts issued by insurance companies and banks. The insurance component offers the potential that the value of the fund won’t decline, no matter what interest rates are doing. Funds may spread insurance contracts among multiple insurers or banks to add diversification.

Four Types

• Individually managed accounts are offered by an investment manager and managed for a specific plan’s participants.


• Pooled funds are offered by an investment manager and combine the assets of unaffiliated plans into one fund.


• General account products are guaranteed by a single insurance company and backed by their general fund.


• Separate account products are offered and guaranteed by a single insurance company from a separate account. Each insurance company has its own fees, charges and limitations so refer to their prospectus.

The Downsides

Funds may come with extra management costs and fees, potentially reducing yields. Funds generally are available only to participants in certain 401(k) and other defined contribution retirement plans. Some college savings plans may also offer stable value funds as an option. If you’re thinking of rolling over a 401(k) to an individual retirement account (IRA) in the future, you won’t find a stable value fund offered by a brokerage.

Stable value funds in your 401(k) plan may have names such as principal preservation, capital accumulation, or guaranteed income funds. Talk to your financial professional before you invest.

*A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment. All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.