Let’s be honest. Thinking about investing and planning for our financial future isn’t easy. There are
so many investment vehicles and strategies that it’s hard to know where to begin. Fortunately, when
you boil it down to what investors really care about, it’s pretty simple—we all want to protect our
hard-earned dollars, and we all want financial security when we retire.
That’s why I love being a part of our stable value team. We are working every day to do just that—
offer a world-class product that gives participants the opportunity to grow their assets but,
importantly, also offers potential peace of mind as it aims to preserve their hard-earned savings in
case of market downturns.
My colleague, Patricia Selim, recently wrote a great blog post about the role stable value can play for
participants nearing retirement. It’s true that these investors (those age 50 and older) use stable
value more than younger investors, but I would extend that to say that our stable value funds can
also be an attractive solution for younger investors to include in their portfolios. Our data, which
looks at all participants in Vanguard-recordkept plans, supports this.
Focusing on emotional well-being
As investment professionals, we are trained to think of the attractiveness of an investment in terms
of what we can quantify—returns, volatility, etc. What I have seen, however, is that even
accumulators (despite having longer time horizons) often care more about avoiding losses and
having peace of mind, rather than just returns.
The work we do in stable value reminds me of a good friend of mine. She is a well-to-do
accumulator who is not at all comfortable with investing. Despite having the ability to take on risk,
she has very little appetite for it. In my former role, I connected her with an advisor for this very
reason. To this day she tells me how grateful she is to have a plan and peace of mind, as she knows
what to expect from her finances.
Stable value investments as a part of a portfolio aim to provide stability with their history of relatively
low volatility compared with bonds. They can help those accumulators in your plan who are loss
averse. That means they feel the pain of losses (even small losses) much more than they feel the
joy of gains. As someone who is somewhat loss averse, not only can I relate, but I see stable value
as a great option for such investors. More loss-averse accumulators may take comfort in the stability
stable value can bring to a portion of their portfolio. After all, stable value is designed to stay at $1
regardless of the volatility in the equity or bond markets, while potentially earning positive returns
comparable to short- to intermediate-term bond funds.
As the table below shows, stable value can offer a very attractive risk/return profile for participants
trying to balance their equity exposure. And the great thing about stable value is it can provide
returns similar to bonds but with low volatility like you see in money markets. So, it can act as a
ballast to the portfolio during periods of market volatility.
Sources: Vanguard; Bloomberg Barclays; and Lipper, a Thomson Reuters Company.
Based on 10 years of returns and return volatility (standard deviation of rolling 12-month returns) as of December 31, 2020.
Source: Vanguard as of June 30, 2021.
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal
value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be
lower or higher than the performance data cited. See performance data current to the most recent month-end. The performance of an
index is not an exact representation of any particular investment, as you cannot invest directly in an index. There may be other
material differences between products that must be considered before investing.
In either case, stable value can help accumulators meet their investment goals just like it does for
investors in or near retirement. And that inspires me, and my colleagues, to work harder every day
to deliver the best product the industry has to offer.
- Vanguard Retirement Savings Trust is not a mutual fund. It is a collective trust available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.
- A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment.
- All investing is subject to risk, including the possible loss of the money you invest.