This article is part of Virginia529℠’s “Three Things to Know” Investment Portfolio series, highlighting the more than 20 portfolio choices available to Invest529® customers. The information presented below is an overview of the plan’s investment options and should not be considered advice. Before selecting a portfolio consider factors such as the age of your child and your tolerance for risk. Past performance is no guarantee of future results.
Stable value funds have long been used as an investment option for individuals looking to balance their retirement plans with low-risk portfolios that boast a steady return regardless of the economy.
But in recent years, a growing number of 529 plans have begun offering a stable value fund portfolio for college savings investors. In many ways, retirement savings and college savings are similar. Individuals saving in 529 plans are also seeking investment alternatives that can handle market turbulence while not negatively impacting the time horizon for when they plan to use their funds.
For the past 10 years, Invest529 has offered the Stable Value Portfolio, an actively managed portfolio that generally provides higher returns than a money market fund (its most comparable competitor) with the goal of protecting the investors’ principal.
During the market downturn of 2008 and in this current COVID-19 environment, stable value funds are one of the few investments that have produced a positive return.
What is the Goal of a Stable Value Portfolio?
A stable value fund is a high-quality, diversified fixed-income portfolio of bonds that is insured by contracts from banks and insurance companies to protect the investor against interest-rate volatility.
Stable value funds are designed to preserve capital while providing steady, positive returns. They are considered a conservative and low-risk investment compared to other investments offered in 529 plans. However, less risk also generally means lower returns. Related: Invest529’s Stable Value Portfolio
Who Typically Invests in Stable Value Portfolios?
It’s important when selecting investments to take into consideration your time horizon and your risk tolerance. Recent law changes in 2017 and 2019 in particular, have brought new flexibility and expanded utility to 529 plans, and qualified uses for 529 plan assets have been expanded beyond traditional college savings to include certain student loan repayment and apprenticeship expenses, and qualified K-12 expenses.
Stable value funds offer a unique combination of principal preservation and steady growth. These portfolios offer an option for conservative investors, those who have relatively short time horizons or those who want their account value to grow in a principal-protected manner.
How does a Stable Value Portfolio Work?
Funds are invested in high-quality government and corporate bonds, short-term, and intermediate-term. They are no different from any bond fund, except they are insured to assure participants receive their principal investment, plus interest.
That assurance extends to recessions and periods of stock market volatility. For instance, investors in Invest529’s Stable Value Portfolio would continue to receive interest payments and not lose principal, regardless of the state of the economy.
Stable fund portfolios are a low-risk investment option comparable to money market funds, but they remain just that: stable. They grow slowly over time, but they generally don't lose value.
- A stable value fund is an insured bond portfolio. That makes them as safe (generally) as money market funds.
- Because stable value funds are insured, investors continue to receive interest while maintaining their principal investment, regardless of stock market volatility.
- Stable value funds may be a strong option for conservative investors, those who have relatively short time horizons or those who want their account value to grow in a principal-protected portfolio.
Low fees, tax advantages and diverse investment options are reasons Invest529 is consistently ranked among the top 529 plans by independent sources. In its latest annual rating (October 2019), investment research provider Morningstar® awarded Invest529 a Gold Morningstar Analyst Rating™ for the fourth consecutive year.
The examples above are provided for illustrative purposes only and are not intended to reflect or predict the actual performance of any specific investment. Virginia529 cannot and will not provide legal, financial, or tax advice, and nothing herein or in any other written materials shall be construed as such.
For more information on Virginia529’s college savings options, visit Virginia529.com or call 1-888-567-0540 to obtain program materials. These include information on Virginia529 programs, investment objectives, risks, charges, expenses and other important information; read and consider them carefully before investing. Virginia529 encourages prospective participants to seek the advice of a professional concerning any financial, tax or legal implications related to opening an account. For residents of states other than Virginia: before investing, you should consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protections from creditors that are only available for investments in that state’s qualified tuition program. ©2020 Virginia College Savings Plan. All Rights Reserved.