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Creating a Pseudo Stable Value Fund Using Vanguard Funds

Mike_Martino
edited December 2011 in Fund Discussions
I have recently retired but have not yet transferred my 401-k assets to a rollover IRA. One reason for my inertia is the fact that my 401-k has an excellent stable value fund in which a huge portion of my assets currently reside. I would like to recreate that stable value fund in my rollover IRA using Vanguard funds. One money manager has told me that T Rowe Price's Target 2005 Retirement fund makes a good pseudo stable value fund. I am curious about what the Vanguard equivalent fund(s) would be. Thank you in advance for your feedback.

Comments

  • fundalarmfundalarm
    edited December 2011
    Please understand that a stable value fund is an investment grade bond fund with an insurance wrapper. You will not be able to "replicate" that at a low cost. If you're looking for a principal guarantee, only cash will do. If you would like some income, but will take a limited principal risk, there are many possibilities of the short term bond funds. If you venture into the target date area, you are increasing your risk manyfolds -- as each of them has equity exposure.
  • catch22catch22
    edited December 2011
    Howdy Mike,

    We presume your rollover will be to Vanguard, yes?

    You may consider:

    VBMFX V's total bond index, which held up well in 2008-2009

    VWINX This fund runs about 60% bonds, 40% U.S. equity.

    VTINX Slanted towards bond holdings, with some equity...a fund of V's funds

    These have 3-4% yield ranges; and very low expenses.

    If you placed, say; 80% in VBMFX and the remainder in VWINX, you would have some, but limited equity exposure. Kinda your own target date fund of funds leaning towards a mixed holding of bonds. Or some other mix.

    Any and all will be subject to interest rate changes and/or equity market changes.

    If I recall, before the market melt in 2008, many stable value funds inside of employee plans were around a 5% yield and today are about 1/2 of that.

    You may find comfort with 2.5% and not much risk; or "x" amount of risk and a possible better return. 2.5% at this time, is a below breakeven with inflation rates.

    These are never easy decisions, when seeking a comfort/sleep at night zone.

    Only my inflation adjusted 2 cents worth.....

    Regards,
    Catch
  • InvestorInvestor
    Reply to @fundalarm: I will disagree. In 2008 some Stable Value funds in 401k plans suspended redemptions because they had invested in largely illiquid, junk grade stuff. Higher yield in bonds typically implies lower quality when everything else is equal. Besides there is hardly satisfactory disclosure of what actually these funds hold since they are not really mutual funds.

    Stable Value funds used to be known as "GIC - Guaranteed Insurance Contracts". After another round of blowup in the past they dropped GIC from name and the NAV may or may not hold $1. Invest at your own risk!
  • fundalarmfundalarm
    Reply to @Investor: much changed since 2008. no insurance company will provide a wrap contract if the porfolio is filled with junk. that is why the current yield on the funds is between 50 and 200 bps. different risk profile.
  • InvestorInvestor
    Reply to @fundalarm: Maybe so but I believe it still riskier than most think. If it is yielding more than a money market fund, it is riskier. I still do not like these less transparent vehicles.
  • fundalarmfundalarm
    edited December 2011
    Reply to @Investor: it's not risky in terms of bond quality. it is risky because of their duration. you get a portfolio of high quality long-term bonds, which is acting as a short-term porfolio (like a money-market fund) because of the insurance contract. my responses were to the original poster who wanted to replicate stable value outside of his 401K with a tdf -- this would be replacing apples with elephants -- not even oranges.
  • jerry
    TRP 2005 is a fine fund but is in no sense a stable value fund as it has in its portfolio more than 40% in stock. Vanguard's target retirement income fund is more conservative but still contains about 30% in stocks.
  • 00BY
    You may want to use VFSTX and VFIIX in your mix. Are you restricted to vanguard only mutual funds?
  • [Deleted User]
    edited December 2011
    The user and all related content has been deleted.
  • 00BY
    Maurice is right that you can't replicate a stable value fund.

    However, you can build a conservative portfolio of mutual funds. Just b/c Vanguard is the broker of your account, you can probably still invest in other fund families through their "FundAccess". This is just a brief stab at it (without knowing anything else about you, it's just a starting point for discussion), so make sure you do your own due diligence:

    25% EXDAX
    15% SNGVX
    15% VFTSX
    15% NEARX
    10% GADVX
    10% MERFX
    10% WIP

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