A Stable Value Fund is a low-risk alternative investment that can be beneficial to a qualified defined contribution plan (QDIA). This article will explore the pros and cons of this asset class and how to evaluate its suitability for QDIA purposes. Ultimately, a Stable Value Fund can be an asset allocation diversifier, as they are low-risk and offer diversification of investment portfolios. For plan sponsors, there are three primary reasons why this type of investment should be considered.
Plan sponsors should do due diligence before investing in a Stable Value Fund
Stable Value Funds can be a good choice for plan participants seeking liquidity, consistency, and stable returns. But participants and plan sponsors must know that these investments carry risk, such as interest rates and issuer credit. This article will discuss the factors plan sponsors should consider before investing in these products. This article will discuss the reasons that plan sponsors should conduct due diligence before investing in a stable value fund.
Investment policy Statement: A plan sponsor should provide its plan participants with information about a stable value fund’s investment policy, which sets the parameters of investment options and the benchmarks against which selections should be measured. The Department’s Interpretive Bulletin 08-2 describes the requirements for investment policy statements. The fiduciary of the plan is usually an employee of the sponsor, and does not engage the services of a professional investment advisor in the selection process. Instead, the fiduciary relies heavily on the vendor of the fund to help make investment decisions. However, an absence of a professional advisor does not constitute a defect in the fiduciary process.
Stable value funds are low-risk
In addition to lowering the risk of your investments, stable value funds also offer insurance. These funds invest in insurance contracts issued by banks and insurance companies. These insurance policies protect your money by ensuring that the value of your fund will not fall. Money market mutual funds aim to maintain a $1.01 net asset value per share. Compared to other mutual funds, stable value funds have low expense ratios. However, you should always check the fees associated with these funds.
Despite the low risk associated with stable value funds, recent economic turmoil hasn’t spared them. The average Stable Value Fund returned just 4.58% in 2008, much less than its ten-year average. A particularly bad example of a decline occurred with the failure of Lehman Brothers. An Invesco Stable Value Fund for employees of the bank lost nearly 1% of its value late in December 2008, which was largely due to a wrap contract.
They can be a good asset allocation diversifier
The stable value fund is an excellent alternative to stock funds if you are looking for a conservative investment vehicle. Typically, stable value funds are only available through employer-based retirement plans. They aim to outperform money-market and cash accounts while providing higher rates of interest. Stable value funds are an ideal choice for individuals with short-term needs who are looking for a safe haven for their money.
If you’re unsure of how to choose a Stable Value Fund, consider whether or not your plan is the right vehicle for you. While Stable Value Funds have low volatility, they have certain disadvantages. A Stable Value Fund’s risk profile includes investment, employer, and income risks. However, its transparency may mitigate these risks, and they may be a good choice if you are an employee who will be with a company for a short time.
They can be a QDIA
If you’re considering investing in a target-date fund, you should know about QDIAs. Essentially, these funds are investment vehicles that provide retirement plan participants with the protection of 404(c) of the Internal Revenue Code. But how do you know if a fund is a QDIA? This article will examine the benefits of QDIAs and their distinction from target-date funds.
While these funds may be an option for some retirement plans, they should not be considered a QDIA unless they offer higher returns than the market average. Stable value funds have a lower risk-to-return ratio than other types of QDIAs. And they are generally more appropriate for those who do not have a lot of experience with funds. However, there are still risks involved with QDIAs, and it’s important to carefully consider these factors before investing.
A stable value fund pays a higher interest rate than money market funds but is less volatile than bond funds. Because the funds are a safer choice, the carriers will often cover these contracts. And they may also be better for risk-averse participants. Those risks aren’t a big concern with stable value funds. The question is, should they be considered a QDIA? In some cases, it depends.