The current interest rate environment
Lower interest rates don’t mean that plan sponsors need to lower the bar for participants. The current environment, combined with regulatory changes for money market funds, can foster a discussion with plan sponsors about the least risky portions of their investment lineups.
It’s time to take a closer look at an alternative option for cash-equivalent investments, in a vehicle that has outperformed the returns for money market funds (MMFs) for the last 30 years.1 Let’s talk about stable value investments.
How stable value works
So what’s special about stable value investments? They’re not mutual funds — they’re a blend of insurance and bonds. The insurance provides protection for the participant’s principal, plus a minimum guaranteed interest rate, to help smooth returns and minimize volatility.
Stable value usually offers a higher rate of return than that of money markets — it’s actually closer to that of short-term fixed income investments. In fact, with a few exceptions, stable value investments have historically stayed ahead of both money market and short-term fixed income investments with significantly less volatility as shown in the chart below.
Outperforming money market funds
Over the last thirty years, stable value returns have outpaced returns for money market investments by an average of more than 200 basis points annually,2 even during the last eight years of a low interest rate environment.
1Performance comparison of the Hueler Stable Value Pooled Fund Index vs. U.S. Treasury securities at a three-month constant maturity for the period ending June 30, 2016.
3Money market rates are represented by the Federal Reserve Bank of New York H15 composite of market yield on U.S. Treasury securities at a three-month constant maturity.
The Hueler Stable Value Index is an equal-weighted total return average across all participating funds in the Hueler Universe and represents approximately 75% of the stable value pooled funds available to the marketplace. All participating stable value pooled funds are available to investors through employer-sponsored retirement plans. The index series dates back to 1983 and is produced on a monthly basis.
Things to consider
Is one of your plan sponsors considering stable value investments? Talk with your Lincoln representative to learn about the important characteristics of money market funds and stable value investments, including differences in risks and fees.
Find out more
The white paper,
Stability, Liquidity and Yield: The Role of Stable Value Investing
, provides historical perspective on this asset class, addresses some of the common concerns raised by plan sponsors, and highlights key benefits.
The Lincoln Stable Value Account is a group fixed annuity issued by The Lincoln National Life Insurance Company, Fort Wayne, IN.
The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.
For contracts issued in New York, the Lincoln Stable Value Account is a group fixed annuity issued by Lincoln Life & Annuity Company
of New York, Syracuse, NY.