Stable Value Fund Still Stable, so far....

Personal opinion, probably not the most educated...

They're earning high interest for a reason. If you are that worried, move to a us govt/treasury money market fund if you have such a choice available; if not, and if paranoid, then roll over whatever you can to an IRA and move to treasuries.

The govt has guaranteed money market funds until at least the end of this year, so if problems are going to happen, they will happen after the end of the year.

Lastly, if money market funds start taking a beating, the stock market will be in much, much worse shape. Where are people going to come up with the money to pay for products that would keep the earnings of companies high enough to maintain stock prices?

Anoop

Please review

andget your facts straight. The biggest change coming is that on Jan. 1,2010, certain deposit accounts will no longer be insured up to $250kbut instead the insured amount will return to $100k. Some accountswill remain insured up to $250k.

If you are saying that the cessation of FDIC insurance bodes disaster in several ways for the economy, including lowering wages, I agree. It will not be just stocks that are in trouble.

Via lowering wages due to an ill economy, true.

OTOH, sometimes I wonder whether this illness will be palliative for the long run.

The various financial disasters that have happened recently are things that few people expected would happen. So why not ratchet our concerns up another notch and question the safety of US government obligations. Will the US government fail to meet its obligations at some time in the future? Perhaps wise investors consider ALL possibilities in their planning.

Swiss banks might be added to the list of places to protect money. But then again, Swiss banks could fail too. The term diversification comes to mind-- diversification among asset classes, not just among funds or types of accounts or institutions within one asset class.

N67, you should get details on your stable-value fund from your 401k provider to find out what it holds. They're different from a money-market mutual fund in that they hold "GICs", guaranteed investment contracts, which are interest-paying instruments from insurance companies. Find out what GICs it holds and the credit rating for each.

The "stable value" is a bit of a fiction that arises because of the "contract" nature of a GIC. They pay interest of x%, and principal at maturity. This is similar in nature to a CD (at a bank, not a brokered CD), which you might also say has a stable value. But that's only by nature of the fact that you hold the CD to maturity and can't sell it along the way. Also, it's covered by FDIC so you know you'll get your money back.

But a GIC is only as good as the insurer writing it, there's no FDIC protection involved. Finding GIC failures is kind of like finding money-market funds that break the buck - very unusual, but that's little comfort if you happen to be holding the bag in an unusual circumstance. GICs were in the news back in the Michael Milken/Drexel days, when some insurers became insolvent because of their junk bond investments. Junk bonds sure are similar to CDOs/CMOs and bad mortgage debt. "History doesn't repeat itself - at best it sometimes rhymes." Whether any GICs end up with losses remains to be seen.

-Tad

I wasn't talking about FDIC insurance. I was talking about insurance by the govt for money market mutual funds specifically - which is probably what the stable value fund is. That would never be covered by FDIC insurance.

looks like the program does run a bit longer than I mentioned,but again it has nothing to do with the link you have posted. Anoop

I am pretty sure that Congress will extend the $250K limit for all FDIC insured accounts before 2010. They won't want to see deposits flee the system. I think the 2010 expiration was put in because they were in a hurry and wanted time later to think about how FDIC should be funded to meet the bigger liabilities.

insurance.http://www.baltimoresun.com/business/investing/bal-te.bz.moneymarket2...> It looks like the program does run a bit longer than I mentioned,> but again it has nothing to do with the link you have posted. Please excuse my blunder.

I loathe how easy it is to mix up money market deposit accounts (FDIC insured) with money market mutual funds (which may invest in mortgage securities).

That probably isn't correct - see my other post.

-Tad

The maximum amount insured is what you had in that money-market account on September 19, 2008. New funds moved into a money-market after that date aren't insured.

Source:

To check on this, I just phoned Fidelity, the administrator of my 401K account.

They said "NO!"

In fact, the stable value fund available to me is *NOT* protected by the by the "Treasury Temporary Guarantee Program for Money Market Funds."

Interesting...I had not even bothered to check on the stable value funds in my 401(k) plan. I guess I need to check as well. I have something called a "fixed income fund" or something like that, but my guess would be that it is similar to a stable value fund.

If you have an option of investing in a TIPS fund through your plan, that may be slightly safer option, although with a potential for deflation in the near term, that may drop as well...

Anoop

I wouldn't guess that. Absent any other info, I'd assume a "fixed income fund" was some kind of normal bond mutual fund. But definitely check.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Turns out that it is not covered. Nor is the stable value fund of the plan of a previous employer.

The only choice I have would be to rollover the money from previous employer's plan to my IRA, but that wouldn't help unless I put it in treasuries because the guarantee only applies to money that were in the funds as of September 2008.

In any case, I think these funds would be less of a risk than regular stock/bond funds. If these start breaking the buck in any significant way, I think stocks and bonds will be a total mess.

Anoop