Recently, I read an article by MarketWatch that reports stable value funds as today’s most popular asset to include in a 401(k), despite what MarketWatch calls the “complex risks” involved. As the article puts it, these funds are both “widely seen as a safe haven” and “often opaque.” But what are these assets, and how do they compare to another traditional safe-haven asset—gold?
What Are Stable Value Funds?
As defined by the MarketWatch article, stable value funds “combine diversified bond portfolios with bank or insurance-company contracts that help guard against market volatility.” In essence, these funds guarantee payments at a specified level of interest, regardless of how the market is doing. But while that sounds simple enough, the article points out that there are often risks consumers don’t know about.
In particular, the article states that while in some cases a plan will own all its underlying assets, with any fees clearly described and the “insurance” on the plan being offered by a variety of providers to lower overall risk, the article also notes, “In other stable value products, the retirement plan owns nothing but a piece of paper.” Or as one retirement plan consultant puts it: “You own no securities, zero, nothing. Just a contract.” With these retirement products, all of the assets in the plan are owned not by you or the plan, but by the issuing insurance company. Because of this, fees may not be as clear, and your wealth could be exposed to significant risk if the company, as the article says, “goes belly up.” And right now, according to the Stable Value Investment Association, more than 40% of stable value assets are guaranteed by a single insurance company.
Still, these products are often seen as a relatively conservative portfolio option.
Comparing Stable Value Funds With Gold
In many ways, the original stable value fund is physical gold. Like stable value funds, gold is often considered a relative safe-haven asset during times of economic uncertainty and volatility.
But unlike stable value funds, gold’s track record is much longer. And unlike with stable value funds, you know you own your assets when you buy physical gold, and that ownership doesn’t change until or if you decide to sell. Plus, the market price for your gold depends on the asset itself, whereas a stable value fund can suddenly be worth nothing if the company that offers the product gets into trouble or goes out of business.
And unlike stable value funds, which offer a set return during times of high inflation, gold’s price can rise with higher inflation while still retaining its safe-haven and store-of-wealth properties.
If you’re looking to add a time-tested safe-haven asset to your retirement portfolio, call U.S. Money Reserve today and speak to a dedicated Account Executive about opening a precious metals IRA backed by physical gold.