Stable Value is Not Money Market

Many of my current Minnesota company retirement plan advice clients are participants in a company 401(k) retirement plan that includes an investment option described as a stable value fund.

Many individual company retirement plan participates confuse a stable value fund with a money market fund. There are subtle, yet potentially important, differences between a stable value fund and a money market fund.

Money market funds mostly invest in short-term U.S. Treasury bills. They are widely regarded as being as safe as a bank deposit. If you put a dollar into a money market fund, you will get a dollar back plus a rate of interest. 

Stable value funds invest in short and intermediate bonds and insurance contracts with longer maturities. Stable value funds are guaranteed against loss by a collection of insurance companies.

These funds are riskier than a money-market fund, meaning they aren't really comparable investments. This is the reason that the interest rate on a stable value fund will be higher than the money market interest rate.

A stable value fund is a conservative investment in a short-term bond mutual fund. Any investment in any bond mutual fund should not be thought of as a risk-free investment.

Stable value funds also may have more restrictions when you need to withdraw money from the fund. You can’t “come-and-go” without any potential penalty in a stable value fund like you can in a money market fund.

All investment option differences are always disclosed in the fine print in your company retirement plan disclosures. But when was the last time you read an investment disclosure?

Ric Lager
Lager & Company, Inc.