What is a Stable Value Investment?

So what is a Stable Value Fund? They are designed for very conservative investors, those near retirement perhaps. They generally offer returns that are a few percentage points higher than your average fixed investment (CD, or money market) with just a bit more risk.

OK, so what am I actually investing in? Until recently, most of them relied heavily on guaranteed investment contracts, or GICs. These are contracts between insurance firms and a company's retirement plan guaranteeing employees a certain rate of return. Now the majority of stable-value assets are invested in "synthetic GICs," also known as "wrapped bonds". These are high-quality bonds that are bound by insurance "wrappers." If a stable-value portfolio falls below the rate of return set by the wrapper, the insurer pays the difference, keeping the fund stable. If the portfolio gains beyond the set return, the fund pays the insurer the difference. These bonds currently comprise about 70% of the assets of the average stable-value fund. There are some similarities to some annuity contracts, in the sense that they both involve an element of “insurance”. Of course, annuity investments have many more variations and nuances of their own.