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I have written several posts on stable value funds over the last year or two. With the financial crisis easing, the topic needs revisiting. It is worth reviewing some of the issues around stable value funds a year ago and contrasting the situation with where we are today. Back from the brink -- Back when Lehman Bros. was failing and the stock market was collapsing, many people moved portions of their 401Ks into stable value funds. These funds guaranteed principal and paid a modest interest rate. It came out that this was a popular strategy for employees even at the Federal Reserve. I, myself, took this same action and wrote about it on this blog. The reaction among readers ranged from agreement on the strategy to "what, are you crazy?" The reason for the latter opinion is that many stable value funds held bonds that had always been solid and conservative in the past but, in the midst of a real estate melt-down, were now at risk. I am talking about mortgage-backed securities i...

There is good news and bad news. The good news is that State Street (STT) decided to provide support to their stable value funds in the face of potential losses. The bad news is that they had to. Here is what they said in their 8-K and referred to in their recent conference call: "In some very limited circumstances, and consistent with applicable regulatory requirements, we may compensate investment pools for all or a portion of the pool’s losses even though we are not statutorily or contractually obligated to do so. For example, during the fourth quarter of 2008, we elected to provide support to stable value accounts managed by SSgA." They go on to provide a little detail: "...we elected to purchase approximately $2.5 billion of securities from these accounts that had been identified as presenting increased risk in the current market environment and to contribute an aggregate of $450 million to the accounts to improve the ratio of the market value of the accounts’ portf...

As markets began to tumble early last year I wrote a couple of posts advocating that workers put a sizable percentage of 401k investments into stable value funds. This generated some debate as stable value funds are somewhat murky investments. It is difficult to find out exactly what investments are held within the funds and there was some fear regarding the fact that it had been common for these funds to hold Fannie Mae and Freddie Mac bonds, for example. Adding to the apprehension, AIG was one of the companies that was well known for providing insurance (known as a "wrap") for these funds in the event they are not able to generate promised returns and needed to make up the difference. Most investors remember when these companies were in the spotlight and eventually required government bailouts. Despite all the worry, stable value funds have been quite stable during all the market turmoil of the last year or so. Except for one. The Wall Street Journal recently wrote about ...

In looking at the logs for this blog I see that many people are visiting TradeRadar because they are searching on the term "401k". I have written a few posts (see the list at the end of this post) describing my approach to dealing with your 401k during this time of sinking markets. It is clear that anxiety is rising as fast as markets are dropping. I had remained fairly calm for the last eight to ten months, with a little over half of my 401k funds spread across a stable value fund, a Treasury bond fund and a global bond fund. I have continued to contribute and allocate nearly all of the contributions to stocks on the assumption that I am purchasing good mutual funds at cheaper and cheaper prices. As the markets have gone from bad to worse to total carnage, it is unsettling in the extreme. Like many of those who are typing "401k" into Google, I am also a working stiff who is worried about his retirement. As someone who closely follows the markets and writes about in...

Worried about your 401K? Should you be? I have written two previous posts focused on being conservative in your 401K during these turbulent days in the stock market (read Part 1 or Part 2 ). The basic concept was that you should lighten up on stocks and allocate a larger percentage, as much as 50%, to a stable value fund. In this manner, you would be obtain somewhat higher interest rates than would be available from a money market fund or Treasury bond fund while preserving capital. Now we have stories in the news about money market funds "breaking the buck" and it is causing many investors to wonder, not only about their money market funds, but also about how stable their stable value funds actually are. The concern is well-placed given that: Fannie Mae and Freddie Mac bonds (known as agency debt) are often found in stable value funds AIG is a major player in stable value funds and provides "wrap" contracts that protect against loss of principal for some 10% of al...

Back in January when the market was going through its first set of gyrations and hitting a serious low I wrote a post titled " Time to get conservative with your 401K ". In that post I suggested that, in the interest of preserving capital, it might be a good idea to move approximately half of your 401K holdings into a stable value fund. It's true, this does have an element of market timing. On the other hand, there is nothing wrong with being defensive when it is clear that the market is in a serious downtrend. In fact, the post was somewhat inspired by the writing of Random Roger who advises that investors avoid allowing their portfolios to go "down a lot" though "down a little" is probably unavoidable in a down market. With the Fed and the Treasury moving to support Fannie Mae and Freddie Mac, it is time to discuss this strategy again. At the time of the original post, there was a debate about the nature of the holdings of stable value funds. The fu...

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...