Although stable value has a long, well established track record of preserving capital, providing liquidity, and generating steady, positive returns, it is important to recognize that all investments have risks, including the potential loss of some or all of an investment.
Any investment is subject to the risk that it will not achieve its stated objectives. Investors should always carefully consider the investment objectives, fees, and all of the risks of any investment before investing.
Investing in stable value is subject to many similar risks of investing in fixed income, including, but not limited to, credit risk, default risk, interest rate risk, issuer risk, liquidity risk, manager risk, market risk, regulatory risk, and tax and accounting risk.
Importantly, there are also some risks that are specific to stable value. While the risk may vary based on the type of stable value fund, common stable value risks include, but are not limited to:
CASH FLOW RISK
Participant-directed contributions, withdrawals, and net transfers may have an adverse impact on the crediting rate.
The investment contract provider could default, become insolvent, file for bankruptcy protection, be in receivership, or otherwise be deemed to no longer be financially responsible.
The chance that a contract issuer pays benefits at a value less than contract value because of the occurrence of an event or condition that is outside the plan’s normal operation. Such events and conditions may include layoffs, sale of a division, plan sponsor insolvency or bankruptcy, unreported changes in a plan’s investment options, communications encouraging an investor to withdraw assets from the stable value fund, or plan changes or plan sponsor actions that may result in reduced contributions or large cash flows out of the stable value fund. These may also be known as employer-initiated events or market value events.