When it comes to talks on investment, nobody wants to be ill-informed. We all want to be smart and well-aware about where we invest our funds, especially as future retirement plan participants. With this, stable value funds have been designed to exist in the market, in order to help us keep ahead of inflation and market volatility.
Now, to stay smart, we would want to choose which type of stable value funds we would want to invest in, and all these come along with a wide array of risks and fees. All you have to do is to choose which among the best stable value funds out there will suit you best.
But what are stable value funds? How do they work, and how do I know which among these will fit my needs? Let’s talk about all these in this article.
What Is a Stable Value Fund?
In a nutshell, stable value funds are one of the various investment options you can choose from in the money market funds today. These money market funds options focused on preserving the capital and investment objectives you put into. Because of this, a stable value fund keeps the value of your cash in the markets regardless of the performance of the stock and the bond markets.
Consequently, the returns are low for this, because the risks are low as well. While some financial management professionals and tenured investors would consider that an SVF is similar to a money market fund, you will have to understand that stable value funds still yield higher interest rate returns than a money market fund and some other stock plan company in the market, and without having to add on more risks.
How Stable Value Fund Works?
Stable value funds are investments offered by insurance companies, stable value investment associations, and banks. They are designed to be wrap contracts or fixed-income securities, as they assure investors a certain amount of return, even if the value assets’ performances decline in the market.
Now, to support that assurance of returns, a wrap balance contract enters the picture. Wrap contracts are those that are reliant on the associated asset value as well as the financial backing provided by the wrap issuer (in this case, the issuers may be banks and insurance companies).
To guarantee your return, it is crucial to know that your money balances should never have worth that is lower than your principal investment in the fund. With this, the bank or insurance company that offers you the wrap will assure you of small percentages of a return–regardless of the performance of the economy. Now, if the fund loses incredible value, the insurance companies and the banks will have that responsibility to complete and make it whole for you.
As it has been mentioned earlier, you will have to remember that just like any other investment in the market, stable value funds come with a risk, albeit a small amount. For example, if your insurance company goes bankrupt and starts to shut down, their bankruptcy will have some sort of impact on your investment strategy and stability.
3 Best Fidelity Stable Value Fund
There are different types of fidelity investments that come with different investment requirements and an array of risk levels. Let’s discuss the top three:
1. Fidelity Balanced (FBALX)
FBALX or Fidelity Balanced is an investment that is considered the highest-rated type of funds in the group of Fidelity funds. Choosing to invest in this keeps you ahead of inflation with a competitive margin. Because of higher yields, the FBALX comes with a rather moderate level of risk balance, as it may not be considered as the most stable among the three in this lineup.
Logic will tell you, however, that the higher the risks you take, the higher the possible yields. The FBALX is one of the best options you can choose with regards to yields and its relation to risks. Keep in mind that the financial portfolio for FBALX is a combination of about 1/3 bonds and 2/3 stocks in the market.
Possible Expense for FBALX: $56.00 per annum, every $10,000 invested
Minimum Investment Requirement for FBALX: $2,500.00
2. Fidelity Freedom Income (FFFAX)
The second type of Fidelity fund is called a Fidelity Freedom Income, and with an acronym of FFFAX. This will suit best those who are conservative with their investments and would prefer company funds with low volatility in the market.
As compared to FBALX funds, the FFFAX has an asset allocation of 1/4 stocks, 1/4 cash, and 1/2 bonds. This is below the average for the income funds set for retirements such as a 401 k, and the allocation of cash is mere twice the category preservation average.
The FFFAX always maintains itself on the conservative side of the funds spectrum. Because of this, the preservation yields come in with an average long term return, but it performs with risks that are below the average. It can guarantee a return after a 10-year investment period of 4%. This means that the FFFAX can beat ahead against inflation on your funds while it maintains the stability its shareholders require.
Possible expense for FFFAX: 49$ per annum for every $10,000 invested
Possible minimum investment for FFFAX: $2,500.00
3. Fidelity Government Income (FGOVX)
If you are those types of investors that settle in with stability while at the same time have a good fund management portfolio and are into investing in high credit quality bond funds, then a Fidelity Government Income (also known as FGOVX) will work best for you.
The stock portfolio of the Fidelity Government Income is comprised of a balance in blend agency bonds (such as GNMA bonds or even Fannie Mae bonds) and U.S. treasury bonds. 98 percent of the mentioned bonds have been qualified with an AAA rating, which performs a lot higher above the average (which is 80%).
The average period for all the bond holdings in this category has been proving itself valuable when interest rates have been rising yet again because long-term bond funds are more sensitive to the interest rate. On the other hand, a short term bond fund might find it challenging to stay competitive in the midst of inflation.
Possible expense for FGOVX: $45.00 per annum for every $10,000 invested
Minimum investment for FGOVX: $2,500.00
How Much Are Stable Value Fund Fees?
When it comes to looking and committing to stable value funds and contribution plans, always check on those that charge relatively small and strategically competitive fees. A stable value fund would usually charge only 0.5% or smaller, and that percentage is already considered as a fair charge. If your stable value funds start to charge you with fees of 1.0% or higher, then be wary because they can consume your already-low yield return.
The fees that you can expect from a stability fund may revolve around the following:
- Internal Expenses or Expense Ratio (this is also known as your operating expenses in the fund).
- Investment advisory Expense or Investment Management Expense (an expense you pay the person who manages your fund in the money market)
- Transaction Expenses (the fee you pay each time your order to buy or sell your stable value funds).
- Front-End Load (commission charges that may possibly reflect into your account)
- Surrender Charges, or Back-End Load (charges each time you sell your fund from your account)
- Custodian Fee or Annual Account Fee (regular annual fee that may be charged on your account).
When Stable Value Funds Are a Good Fit
Stable value funds will be a good fit for you and your 401 k contribution plans if you are a conservative investor and would like to invest exclusively in GICs or Guaranteed Investment Contracts. These stable value investment association contracts are those issued by 401 k insurance or retirement plan providers that guarantee you, as the investor, some sort of yield and return.
Know that because a lesser risk is involved with stable value funds, a lower return should be expected. But if you are a worker who is nearing your retirement, or if you would simply want to have stability in your portfolio– especially amidst times of market volatility and crises, then a stable value fund would be a perfect fit for your investments and 401 k.
Read more: Best Fidelity Low Risk Funds
Always keep in mind that you will have to be well-informed and smart with your stock investments. With this, it is important to do your research and refer to professional institutions like Investoralist that can help you not just with information on your stock investments and retirement plans, but also with your assets and the risk that you would like to use in investing.
Stable value funds are indeed beneficial in the long haul, especially if you are an employee excited for your nearing retirement period in life. If you would want to diversify your financial stock portfolio and gain some sort of stability and security with your cash and finances with a low level of risk, then these types of funds and securities in the market would suit people like you best.