A stable-value fund is an excellent way for those approaching retirement age to diversify their portfolios. Stable-funds tend to offer higher returns on interest than a money market account, but have a bit more risk involved. Until recently, stable-value funds were an incentive only available through employer 401k benefit plans, but things have changed. Now individual investors can take advantage of this conservative type of investment through their IRA.
Stable-value funds are made up of "synthetic guaranteed investment contracts" or wrapped bonds. They tend to be high quality, shorter termed bonds that are bound by insurance wrappers. If the stable-value investment declines below the wrappers rate of return, the insurer fills in the financial gap; thus, stabilizing the funds value. However, if the stable-value invest grows beyond the wrapper return, the fund gives the monetary difference to the insurer.
If you are planning your retirement then a stable-value fund can provide a good diversification in your portfolio. Stable-value funds are fixed income investments, derived of an assortment of high quality bonds. The investments tend to be consistent with their delivery - so capital investments are predictable.
The stable-value fund market is extremely large and flush with cash. 33% of the stable value investment is from employee-directed 401(k) plans and total $396 billion in value.
Those considering this type of investment strategy should thoroughly investigate their options, as well as properly research all the fees associated with these types of investments. Private investors choosing to diversify their IRA portfolio may be hit with up to a 1% fee according to the Stable Value Investment Association.
Plus, there are redemption rules specific to stable-value commodities. Most stable-value funds have no withdrawal restrictions. However, since these investments tend to be part of a person's retirement strategy, there may be penalties associated with that fund.
