Earning 3 percent in a 1 percent world may be appealing, especially if you won’t lose principal. That’s what stable value funds offer these days. These funds invest in fixed-income instruments with fluctuating values, such as mortgage-backed paper and credit card debt; they also purchase insurance agreements (“wrappers”) to protect themselves against rising rates-and falling asset values.

Stable value funds usually are offered only in retirement plans and 529 plans, where redemptions are expected to be light. When selecting a stable value fund, though, you need to be aware of restrictions. Some funds might impose a 2 percent surrender charge, for example, if short-term rates go higher than long-term rates. Also, you should peek inside the wrapper to see what risks are being taken, in return for higher yields and principal protection.

FEDweek Newsletter
Veteran insight on your federal pay, benefits, career and retirement!
Share