Stable Value funds

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Sep 23, 2008 2:40 am

    I, as probably most of you, have several clients/prospects that have old 401k's they simply don't want to roll over because they have consistently been making around 5% on their stable value funds. I've been looking online at the topic, and it seems like the stable value funds keep current information out of the public eye.  Now I've heard from a client that called me that the Stable Value fund managed by State Street had an assload of AIG contracts and will be forced to cut the dividend next to nothing and possibly start eroding principal.  So I wanted to see if anyone out there could enlighten me on the current situation.......after all, this would be some GREAT ammo to hammer around a dozen prospects I haven't talked to in years and are still in my system.



    I don't really understand how they can keep the principal stable, considering the contracts must be constantly changing value, especially as of late.  I'm wondering if some new regulation will come down the pipeline forcing stable value funds to reprice to NAV as close as possible?  If so, another reason to roll over into an IRA......
Sep 23, 2008 10:05 am

Why not just give them a fixed annuity?  Give them what they want.  Make them a client, then make other recommendations.

Sep 24, 2008 1:28 pm

I just had a client tell me that Suze Orman was telling people on her show last night to get out of money markets and get out now because they're dangerous.  Honestly, can she get any more ignorant?  Where does she want people to put money at that point?  I don't have my head in the sand, but to make such a blanket statement...wow...

 
On the stable value contracts, I've wondered that for awhile...just assumed that they operated very much like a fixed annuity, but don't know much about them beyond that.
Sep 24, 2008 5:44 pm
iceco1d:

Suze is mildly retarded.

 
Mildly?  I'd say she is full-blown.
Sep 24, 2008 6:24 pm

The stable value funds are buying things that are guaranteed...but the guarantees are only as good as the claims paying ability of the issuer.


Rankstocks, you are describing my VA clients.   Instead of a hammer, don't you simply need a better alternative than a stable value fund?


Sep 24, 2008 6:31 pm
anonymous:

The stable value funds are buying things that are guaranteed...but the guarantees are only as good as the claims paying ability of the issuer.


Rankstocks, you are describing my VA clients.   Instead of a hammer, don't you simply need a better alternative than a stable value fund?


 
"But the fees are too high!!!!!!"
 
/rankstocks
Sep 25, 2008 2:05 am

Many of these prospects/clients are married to these stable value funds....you can't shake them no matter what.  What I'm interested in is a discussion on the current situation and its effect on stable value funds.  Any insight would be greatly appreciated.

Sep 25, 2008 6:56 am

Rankstocks, what I'm hearing from you is, "I have nothing better to offer these clients, so I'm searching for a way to make these funds look worse.  If they look worse, maybe I can get the business."

 
You're probably sick of getting beat up on the annuity conversation, but, seriously, what have you offered your clients that is better?  People aren't married to stable value funds.  It's not like the electric company stock that was given to them by their grandmother.
 
The clients who are "married" to stable value funds aren't married to them.  They simply want to invest in a way that guarantees them against loss.  Unless you have something in your arsenal that can do this for them better than stable value funds, they should be advised to see a different advisor or stick with the stable value funds.
 
As for the stable value funds and the current situation, it really depends on their underlying holdings.   Personally, I don't think that there's much of an issue.
Sep 25, 2008 12:26 pm

I hate Suzie, buttttt?   Ameritrade's Ready Reserve Fund broke a dollar eariler this week. Those unfortunate enough to have money in this fund are frozen with no way out at this point. I know one guy with 2 million dollars in the fund.

 
I think it's fair to ask who's next? And I beleive it is good advice to caution clients regarding their exposure to non guaranteed, or uninsured funds. Also a good idea to recheck and double check the safety of funds you may be using. Don't assume that they are unsinkable.
 
Rank, sorry for the hijack.
Sep 25, 2008 4:07 pm

I'm not.  I just find her wild-eyed sky is falling advice  to be anything but constructive.  You'd think all mmkts were going straight to zero the way she put it to my client.

 
and now...back to our story...
Sep 25, 2008 4:21 pm

We all grit our teeth over the Suzie phenom. She's the Dr. Phil of finance.

 
I didn't hear her call to run for the hills. But the basic advice to check your money market is not a bad idea, if only stating the obvious.
Sep 25, 2008 6:46 pm

Suzie told my client last week that she should put everything in municipal bonds if she wanted to be safe.