During periods of market turbulence and low interest rates, many investors struggle to find investment alternatives that aren't getting hammered. But you may be pleasantly surprised to discover a unique breed of mutual fund known as stable value funds.

These funds, which are typically offered in 澳洲幸运5开奖号码历史查询:401(k) plans, are somewhat similar to 澳洲幸运5开奖号码历史查询:money market funds, except they post higher yields with relatively little risk. If you're considering a 澳洲幸运5开奖号码历史查询:stable value fund, here's a look ꦍat how ♊they work so you can weigh their advantages and disadvantages before deciding if they are a good choice for your retirement portfolio.

Stable Value Funds Explained

Stable value funds are a type of cash fund that resembles a money market fund by offering protection of 澳洲幸运5开奖号码历史查询:principal while paying stable rates of interest. Like their money market cousins, these funds maintain a constant share price of $1.

Stable value funds have typically paid twi🐎ce the interest rate of money market funds. Even intermediate-term bond funds tend to yield less with considerably more volatility.

Stable value funds used to invest almost exclusively in 澳洲幸运5开奖号码历史查询:guaranteed investment contracts (GICs), which are agreements between 澳洲幸运5开奖号码历史查询:insurance carriers and 401(k) plan providers that promise a certain 澳洲幸运5开奖号码历史查询:rate of return. However, a number of insurance carriers that invested heavily in 澳洲幸运5开奖号码历史查询:junk bonds in the 1980s suffered heavy losses and defaulted on some of their agreements. Retirement plan participants of other providers, such as the now-defunct Lehman Brothers (which 澳洲幸运5开奖号码历史查询:declared bankruptcy during the financial crisis of 2008), discovered that their GICs became invalid in the event of corporate 澳洲幸运5开奖号码历史查询:insolvency. Subsequently, GICs fell largely out of favor as funding vehicles for st👍abl♏e value funds.

These funds now invest primarily in 澳洲幸运5开奖号码历史查询:government and 澳洲幸运5开奖号码历史查询:corporate bonds with short- to medium-term maturities, ranging from approximately two to four years. Stable value funds are able to pay higher interest than money market funds, which usually invest in 澳洲幸运5开奖号码历史查询:fixed-income securities with maturities of 90 days or less.

How Risk Is Managed

The holdings within stable value funds are more susceptible to 澳洲幸运5开奖号码历史查询:changes in interest rates than money market holdings because of the longer maturities of the ✃bonds in which they invest.

This risk is mitigated by the purchase of insurance guarantees by the fund that offset any loss of principal; these guarantees are available from banks and insurance carriers. Most stable value funds will purchase these contracts from three to five carriers to reduce their default risk.

Usually, the carriers will agree to cover any contracts defaulted upon in the event that one of the car𒀰riers becomes in🦋solvent.

Disadvantages to Consider

Stable value funds pay an interest rate that is a few percentag༺e points above money market funds. They also do so with substantially less volatility than bond funds.

However, these funds also charge annual fees that cover the cost of the insurance wrappers, which can be as h🍨igh as 1% per year in some cases.

Furthermore, most stable value funds prevent investors from moving their money directly into a similar investment, such as a money market or 澳洲幸运5开奖号码历史查询:bond fund. Participants must instead move their funds into another vehicle, such as a stock or 澳洲幸运5开奖号码历史查询:sector fund, for 90 days before they can reallocate them to a c𒈔ash alternative.

Perhaps the biggest limitation of stable value funds is their limited availability. They are gen✱erally only available to 401(k) plan participants of employers who offer these funds within their plans.

Another key point to remember is that these funds are stable in nature, but not guaranteed. Although the chance of losing money in one of the funds is relatively slim, they should not be categorized with CDs, 澳洲幸运5开奖号码历史查询:fixed annuities, or other𓂃 investments that come with an absolute guarantee of principal.

When Stable Value Funds Are a Good Fit

Stable value funds are an excellent choice for conservative investors and those with relatively short 澳洲幸运5开奖号码历史查询:time horizons, such as workers nearing retirement. These funds will provꦛide income with minimal risk and can serve to stabilize the rest of the investor's portfolio to som✱e extent.

However, they should not be viewed as 澳洲幸运5开奖号码历史查询:long-term growth vehicle🙈s, and they will not provide the same level of return as stock funds over time.

The Bottom Line

Stable value funds serve as a happy medium between cash and money market funds, which hav꧙e low yields, and bond funds, which have higher risk and volatility. These funds provide higher rates of interest with little or no fluctuation in price.

But this stability comes at a price in the form of annual fees and lower returns than s🐠tock funds. In addition, transfers into other cash instruments can only be made under certain conditions.