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September 5, 2010 |     |
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Newsletters
Safety of the Stable Value FundWith the market turmoil, plan participants have an ideal fund to rely on, the Stable Value Fund. The fund has been in the plan since inception in January, 1979 and since then has remained the most popular investment option for plan participants. Over 60% of plan assets are invested the Stable Value Fund. How Does It Work? The primary objective of the Stable Value Fund is to preserve capital while providing a stable rate of return to all participants. Capital preservation is achieved by the manager of the fund, Standish Mellon, who oversees $199 billion of fixed income assets including $15.5 billion of stable value assets. As we have said through the years, diversification is the key to any good portfolio and the same is true of the Stable Value Fund. It is the diversification of the Stable Value Fund that provides its safety and its unique benefits and features such as preservation of principal while generating a stable rate of return for your retirement account. The Stable Value Fund is perhaps the most diversified option in our plan with direct and indirect exposure to in excess of 3500 fixed income securities, and an overall credit rating of AA+. The selection of these investments is accomplished through a vigorous and disciplined investment process. The Fund has strict investment guidelines which outline permissible investments such as minimum credit rating by Standard & Poor's and Moody's as well as other language more specific to security type. The Fund invests in fixed rate AAA-rated diversified asset-backed securities as well as units of indexed bond funds. All assets are continually monitored to avoid any potential of default and compliance with guidelines. In addition to capital preservation, the Fund's interest rate tracks the direction of intermediate term interest rates as they increase and decrease, albeit with approximately a six month lag. Tracking the direction of interest rates with a lag occurs as a result of a laddered maturity schedule that is constantly maturing, thus allowing the Fund to purchase new investments in various interest rate environments. When interest rates are low the portfolio has the benefit of holding onto investments made in a higher interest rate environment. When interest rates are high the portfolio has the benefit of re-investing maturing proceeds. (see Maturity Summary chart) This brings consistency to the Fund since bets are not made on the direction of interest rates. All holdings within the Fund are "wrapped" by contracts issued by five substantial banking and insurance firms. These wrap contracts smooth the gains and losses of the underlying investments, which enables the Stable Value Fund to deliver a relatively stable interest rate. Further, the wrap contracts provide provisions that allow participants the ability to access their principal balance at any time. How Does the Stable Value Fund Differ from a Bond Fund and a Money Market Fund? In smoothing gains and losses of the underlying investments over a three year period, the Stable Value Fund is able to deliver a stable rate of return. By contrast, bond fund values fluctuate with interest rates meaning changes in interest rates affect both the principal balance and the amount of interest earned on the principal balance. Compared to a money market fund, stable value funds are typically able to provide a higher rate of return due to investing in longer term securities (three year average) versus money market funds (one year average). The comparison charts show the fluctuating value of a bond fund and the lower rates of a money market fund, comparing them to the stability of the Stable Value Fund. These are complex times with the uncertainties of the economy, the election and the markets. It is reassuring to be able to remind you that your Plan offers the Stable Value Fund with all of its unique benefits and features and we hope that this article has helped you learn more about it. Email Address Request In times like these we would like to be able to communicate with all of our participants more rapidly rather than by standard mail, which can sometimes take several weeks. Email is the quickest and most effective way of communication and we would like to add you to our email distribution list to ensure that you receive important communications from us in the most timely fashion. You can provide us with your current email address by: Calling our office at (800) 223-7608 OR Emailing us at info@scarboroughny.com (Published: 11/7/2008) Back to Index |
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