Stable Funds for Volatile Times
Stable-value funds are a lot less risky than stocks, but be a little skeptical in this market of any promise of 100% stability.
In my 401(k) plan, I have money in Promark Income fund, a stable-value fund. How risky is this type of fund? Also, is this a good substitute for some of the bond portion in a diversified portfolio?
Stable-value funds sure are a lot less risky than being in the stock market. And so far, they've done a great job of maintaining their stability. David Babbel, coauthor of a study on these funds, says none has ever experienced a decline in value.
Promark Income fund, run by General Motors Asset Management, returned 5.1% over the past year through September 30 and an annualized 5.6% since its inception on December 31, 1998. A spokesman says the fund invests in a full spectrum of fixed-income instruments, including money-market funds and corporate bonds. As with all stable-value funds, principal is guaranteed by a "wrapper" from an insurance company. In this specific case, three double-A-rated insurers guarantee the fund's value.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Babbel says three safeguards "act as a pretty good safety net to keep stable-value stable": the funds' own investment guidelines, the accounting standards the funds use, and the insurance company's credit-quality requirements.
Babbel's study, which examined these funds from their inception in 1989 through 2007, found that they typically outperformed money-market funds and intermediate-term government-bond funds while delivering a guaranteed quarterly return. So you could use Promark Income for a portion of your bond investments. Keep in mind, though, that with global financial markets in turmoil, any promise of 100% stability has to be taken with at least a tiny bit of skepticism.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
It’s Not Too Late to Boost Retirement Savings for 2018retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Using a 529 Plan for High School
529 Plans You’re now able to withdraw up to $10,000 tax-free from a 529 plan each year for K-12 tuition.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Ex-Workers Get More Time to Repay 401(k) Loans401(k)s If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
The 11 Most Valuable Personal-Finance Lessons of 2018
Financial Planning How to reduce taxes and medical bills, help the next generation save for retirement and protect against identity theft were some of the issues on readers’ minds in 2018.
-
The Rules for Making a Tax-Free Donation from an IRA
IRAs Making tax-free gifts to charity from an IRA is gaining in popularity among older investors, thanks to changes under the new tax law. Here’s what you need to know to make a qualified charitable distribution.
-
New Rules on Capital Gainsinvesting Rates didn’t change, but they’re pegged to your income instead of your tax bracket.
