Why Stable Value Funds Ease Risk Anxiety For Millennials Stable value funds have three unique product benefits that can be attractive to millennials saving for retirement. • Kent Bartell
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mployees of all age groups have trouble making educated choices about investing in their retirement plan, but millennials often face some unique challenges as compared with other generations. Because of this group’s age range, millennials aren’t all in the same stage in life. Some are pursuing higher education, some are starting their first jobs and others are climbing the corporate ladder. In addition, a large portion of millennials still have student loan debt. This can influence their retirement savings decisions and impact their ability to save adequately in the long run. Contributing to a defined contribution plan now, even in small amounts, can create larger earnings over time. But when it comes to investing, millennials tend to be more risk-averse than their parents. The reasons range from experiencing an economic recession to saving to buy a home or a host of other factors. Given the growing number of millennials in today’s workforce, now can be a great time to talk to clients in this age bracket about adding a low-risk investment product — stable value funds — to their defined contribution plans. The Principles Of A Stable Value Fund Because stable value funds are designed for investors who are looking for a retirement plan with a guaranteed return of principal and interest, along with competitive crediting rates and liquidity, they are inherently less risky than many other investment options. Many stable value funds also have locked-in quarterly interest rates, so the investment is more stable than an investment tied to an individual business 46
or stock. As you make the case for clients to consider stable value funds, highlight how these three unique product benefits can be attractive to millennial employees: 1. Capital Preservation
Depending on the carrier, a stable value fund’s crediting rate typically is contractually guaranteed and known to a client in advance. The rate is often locked into place every quarter or at least semiannually. Some insurers even guarantee that the crediting rate will never fall below 1%. This level of certainty may be what
comfort of knowing they have the freedom to move their money to other investments whenever they want. There are generally no restrictions or penalties for the individual investor. 3. Yield
Holding steady through marketplace volatility, stable value funds serve as a lowrisk investment vehicle that provides a guaranteed yield — no matter what. The product can provide the liquidity and principal-protection features of money market products but with the higher yields that are comparable with intermediate-term bonds. Stable value funds are backed by a high-quality, well-diversified portfolio
After a millennial plan participant becomes more comfortable with investing in general, they may then ultimately decide to switch at least some of their investments to riskier assets. it takes to assure millennials their hardearned savings will be protected. Explain to millennial plan participants that they’re at an ideal age to capitalize on the guaranteed crediting rate because the longer the fund is invested, the more time the investment has to grow. In most cases, millennials will be working for at least two more decades, providing a reasonable time frame to accrue a sizable sum for retirement. 2. Liquidity
After a millennial plan participant becomes more comfortable with investing in general, they may then ultimately decide to switch at least some of their investments to riskier assets. Stable value funds offer the flexibility to do that. Liquidity can give millennials the
InsuranceNewsNet Magazine » February 2020
of fixed-income options. These types of diversified investments can protect investors from the market fluctuations that are experienced in higher-risk investments, such as the stock market. Millennial employees may feel reassured to hear that if we experience another economic recession, their hard-earned money would not take a hit. Stable Value Fund Education: The Key To Smarter Plans A lack of awareness about stable value funds is often the deciding factor in an employee’s choice not to invest in one. It is up to financial advisors to fill that educational gap. By doing so, you will help plan participants make meaningful choices about their retirement while boosting your own credibility.