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SVIA President Sees Stable Value's New Allure Lasting

With the stock market on the march again, the Stable Value industry is anxious to find out whether investors' renewed fondness for its products marked the start of a long-term relationship or a short-term kiss-and-run courtship. Gina Mitchell, President of the Stable Value Investment Association, expects the ardor to last.

"The unique characteristics of Stable Value will keep the fire in this new romance," Mitchell said at the opening of the SVIA's 2003 National Forum. "Retirement investors have learned the hard lessons of the past three years, namely, that risk tolerance and diversification matter."

As they watched the stock market tumble sharply from 2000 through 2002, many retirement plan participants who would have dismissed conservative investments in the 1990s sought solace in bonds, money market funds and Stable Value investments. According to investment consultants Hewitt Associates, 401(k) investors allocated 23.7 percent of their retirement plan contributions to Stable Value funds in September 2003, up from 11.1 percent in September 2000. Thanks to increased allocations and turbulent financial market-allocations to Stable Value funds rose to 33 percent in 2002, up from 20 percent in 1999 according to the Seventh Annual SVIA Stable Value Investment and Policy Survey on Stable Value funds.

Of course, if some investors were quick to abandon equities in favor of Stable Value when the stock market was falling, it is entirely possible they will jettison Stable Value and flock back to equities once the stock market shows renewed signs of life, as it has this year. Through October 15, the Dow Jones Industrial Average was up 17.5 percent this year and the NASDAQ Composite Index was up a stunning 46.1 percent. But Mitchell said current Stable Value returns, now hovering in the five percent per year range, are still generous compared to the one percent or less many money market funds are offering. And, she said, Stable Value's promise of principal preservation still resonates with investors dizzied by the volatile stock and bond markets.

"Investment reality has set in," Mitchell concluded. "Stock market expectations have changed. Investors are not just getting worried, either. They are getting older. That makes the security of Stable Value all the more alluring, not only to baby boomers who are approaching retirement age, but also to retirees eager to protect the nest eggs they have been building up throughout their working careers. Clearly, the news for our industry is encouraging. We have a tremendous opportunity before us."

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