# Stable Value Funds: Definition, Benefits, Risks, and Investment Guide

> **Definition**
>
> A stable value fund is a bond portfolio that provides investors with capital protection and consistent interest payments, making it a popular choice in retirement plans for those with low risk tolerance.

## What Is a Stable Value Fund?

A stable value fund is an insured bond portfolio that is popular with investors who have low risk tolerances. It is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. Investors in a stable value fund continue to receive the agreed-upon interest payments regardless of the state of the economy. Although an option for many retirement plans such as 401(k) plans, and especially aimed at those savers nearing retirement, a stable value fund often carries lower yields and higher fees than other investments. The insurance component of these funds makes them nearly as safe as money market funds.

### Key Takeaways

*   Stable value funds are insured bond portfolios, making them a low-risk investment option, and especially attractive for retirement plans.
*   These funds offer stability with guaranteed interest payments, protecting investors from market fluctuations and economic downturns.
*   Although they provide safety, stable value funds typically have lower yields and may come with higher fees due to insurance costs.
*   Investing heavily in stable value funds might expose investors to inflation risk, as their returns might not keep pace with rising prices.
*   Financial advisors recommend a balanced portfolio that includes both low-risk investments like stable value funds and higher-risk, potentially higher-reward assets.

## How Do Stable Value Funds Work?

Stable [value funds](https://www.investopedia.com/terms/v/valuefund.asp) invest in high-quality government and corporate bonds, short-term, and intermediate-term. They are no different from any bond fund, except they are insured. An insurance company or bank must protect investors from losing capital or interest.

Bonds in these funds are often called "wrapped" bonds because they are insured. The insurance is commonly issued in the form of a so-called synthetic [guaranteed investment certificate](https://www.investopedia.com/terms/g/gic.asp) (GIC).

A stable value fund is inherently as safe an investment as a money market fund. Historically, such funds provide a slightly higher rate of return than money market funds.

## Advantages and Disadvantages of Stable Value Funds

Stable value funds remain just that: stable. They don't grow over time, but they don't lose value either.

Stable value funds are guaranteed during [recessions](https://www.investopedia.com/terms/r/recession.asp) and stock market volatility. While many other investments drop in value, the owner of a stable bond fund continues to receive the agreed-upon interest payments and never loses [principal](https://www.investopedia.com/terms/p/principal.asp) regardless of the state of the economy. The insurer must compensate the fund for any losses.

Because of the insurance, however, these funds come with extra management costs and fees, which can be a drag on the already lower yields that these investments offer due to their low risk.

## Investing in Stable Value Funds: Tips and Considerations

A stable value fund is often an investment option in qualified retirement plans such as [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) plans. A stable value fund may also be an appealing alternative to lower-yielding vehicles such as money market funds for the portion of an investor's [portfolio](https://www.investopedia.com/terms/p/portfolio.asp) that is used to counter [market volatility](https://www.investopedia.com/terms/v/volatility.asp). Stable value funds can provide the essential elements of balance and stability in a portfolio weighted in growth investments.

However, there is a danger if a portfolio is weighted too heavily in lower-yielding investments such as stable value funds. The investor risks being squeezed by inflation down the road. A retirement income that seems sufficient initially can gradually become inadequate as the years pass and inflation mounts.

Most professional financial advisors recommend a portfolio that is a mix of safe but low-yielding investments and risky but potentially rewarding investments, with a gradual reweighting towards safety as the investor approaches retirement age.

Investors also should check the expenses associated with stable value funds. Historically, their fees have been in the low range compared to most [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp). However, insurance companies have been increasing their fees due to the perceived risks of a more volatile market.

## The Bottom Line

Stable value funds are insured bond portfolios that protect against yield declines or capital loss.  
They are popular among low-risk investors and those approaching retirement because they provide stability during economic downturns. While they offer security and slightly higher returns than money market funds, they offer lower yields and potentially higher management fees than other investments. Be aware of inflation risk as these funds won't increase in value even as prices for goods and services rise. Most financial advisors recommend an investment strategy focused on diversification as a way to reduce overall risk and to balance returns.