Stable Value Vs. Money Market
Differences between investment elections can sometimes cause confusion. For example, stable value funds and money market funds share the same objective---to preserve capital with an absolutely stable value---but have different creation methods.
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Objectives
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Investors can choose from among three broadly general asset classes within the capital markets (stocks and bonds, for example): equities (stocks), fixed-income (bonds) and cash equivalents (cash, treasury bills, money market funds or "stable value funds"). Cash equivalents always seek to maintain a value of $1 and serve as a safe haven.
Stable Value Funds
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Stable value funds---guaranteed-interest contracts backed by the full faith and credit of an insurance company---are typically only available to participants of large employer-sponsored retirement plans. An insurance company guarantees the stable value of a unit with a fixed-interest return. The insurance company, in turn, uses these large pools of money to invest in other presumably higher-yielding securities. The guaranteed return is usually higher than a money market fund.
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Money Market Funds
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Money market accounts and funds also seek a stable value of $1. However, they directly hold the underlying securities rather than the guarantee of an insurance company (and thus being reinvested elsewhere). Money market securities are typically ultra-short-duration, highly liquid fixed-income investments. As a result, the yield is lower and can fluctuate whereas the insurance company resets a stable value fund's yield periodically---usually annually.
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