Protect Nest Eggs With Stable Value Funds

NEW YORK (TheStreet) -- With the Federal Reserve holding down interest rates, plenty of cautious savers feel forced to accept puny yields. Money-market funds pay next to nothing, and most five-year certificates of deposit yield less than 1%. But investors in 401(k) plans have a richer alternative: stable value funds, which yield 2.9%.

In recent years, stable value funds have served as workhorse investments, accounting for 12% to 15% of assets in 401(k) and other defined contribution retirement plans. The funds have $540 billion in assets, according to the Stable Value Investment Association.

The value of the stable funds became clear as the financial crisis savaged 401(k) plans. During 2008, stocks plummeted, and many bond funds dropped sharply. But throughout the turmoil, millions of savers were protected by holding stable value funds. Nearly all the funds stayed afloat, returning more than 4% for the year.

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Some investors think of stable value funds as bank accounts. The funds protect principal and pay interest. But the stable value accounts are not guaranteed by the Federal Deposit Insurance Corp. Instead the returns of the funds are protected by insurance contracts known as wraps that are offered by banks and insurance companies.