[2][3] They offer principal preservation, predictable returns, and a rate higher than similar options without proportionately increasing risk.
[4][5] The funds are structured in various ways, but in general they are composed of high quality, diversified fixed income portfolios that are protected against interest rate volatility by contracts from banks and insurance companies.
[6] Stable value funds are designed to preserve principal while providing steady, positive returns, and are considered one of the lowest risk investment options offered in 401(k) plans.
GICs are issued by insurance companies and guarantee principal invested plus a periodically-reset interest rate for a specific duration.
[1][15][16] Regardless of how stable value funds are structured, they are a diversified portfolio of fixed income securities that are insulated from interest rate movements by contracts from banks and insurance companies.
[15] A contract with an insurance company that provides principal preservation and a specified rate of return over a set period of time on an account that holds a combination of fixed income securities.
Separate accounts may provide either a fixed, indexed, or periodic rate of return based on the performance of the underlying assets.
The assets are owned by the insurance company and are set aside in a separate account solely for the benefit of the specific contract holder or retirement plan.
[15] A contract with a bank or insurance company (commonly referred to as a wrap) that guarantees a rate of return for a portfolio of assets held in an external trust.
[15] The typical stable value fund will diversify contract protection by investing in more than one instrument type and/or with more than one insurance company or bank.
Generally a participant must first place money in a stock or equity fund for at least 90 days, but cash withdrawals have no waiting periods.
[19] In addition to the Department of Labor, stable value investment structures provided and/or managed by banks are regulated by the Office of the Comptroller of Currency and/or the Federal Reserve.
Money market funds are widely (though not necessarily accurately) regarded as being as safe as bank deposits yet providing a higher yield.
Regulated in the US under the Investment Company Act of 1940, money market funds are important providers of liquidity to financial intermediaries.