Cobb Retirement Solutions, LLC

Why Loan is a Four Letter Word for your 401(k)

noemail@cobb-retirement.com — Fri, 31 Oct 2008 15:00:00 GMT

For a downloadable version of this article click on the link below:

Why Loan is a Four Letter Word for your 401(k)

By Marshall Cobb

If you need extra money – and there are plenty of reasons right now why you might – you are probably tempted to take a loan from your 401(k) plan. Without a doubt it’s your money and with a few pen strokes (or mouse clicks for the tech savvy) the funds will soon show up at your doorstep.

At first glance, the positives of this transaction are numerous. This is your money and you are loaning it to yourself with no credit check or qualification process. Better yet, the interest you pay on the loan is paid back into your account and doesn’t end up in the pocket of a fat-cat banker (assuming that fat-cat bankers still exist in this day and age).

It all sounds so simple. Is it too good to be true? Yes it is. Let’s take a look at the details and see why.

The funds you are borrowing have not been taxed. Not taxing the money until you pull it out at retirement is the whole idea behind 401(k) plans so this should make sense to all involved.

Unfortunately, the rules quickly change when we look at how the loan will be paid back. While the funds you withdrew were never taxed, your repayments are taken from your paycheck after all federal, state and local taxes have been assessed. To put it in the simplest terms, a $40,000 loan could easily take $50,000 - $55,000 of your pay to settle.

You might be tempted at this point to say that a loan from the bank is repaid with after-tax dollars and you would be absolutely correct. The problem with this answer is that once you’ve paid the banker back you’re free and clear of any future obligation. It’s a whole different story when it comes to your 401(k) loan.

Once you’ve paid back your loan it will presumably go back to work for you in whatever manner you choose to invest it. This money – let’s stick with our prior example and keep it at $40,000 – is already taxed money sitting in your otherwise pretax account. What happens when you elect to withdraw these same funds at retirement? You’ve already paid taxes on your repayments so surely you get a pass on your retirement withdrawal. Right?

Sadly, no. You will pay taxes on this same $40,000 as ordinary income when it comes out of your account at retirement. Depending on tax rates at your retirement (does anyone believe they are going down?) you will likely more than double your tax rate for these funds. To add insult to injury those after tax "interest payments" you made to your account will now also be taxed.

From a tax standpoint taking a loan is about the worst thing you can do. There is, however, another problem with taking a loan that can even be a bigger financial issue in the long term.

The issue here is the source of your loan. This money was invested in something before it had to be liquidated for your loan. In normal times this meant that you were cashing out funds at some level of gain and taking them out of the market for the duration of your loan. At worst you were robbing your account of its normal ability to grow during normal market cycles.

We all know that this is not a normal time in the market. Should you take a loan now, you are likely forcing these funds to be sold at a price significantly below the purchase price. This loss – which you have now locked in – will be made even larger if (hopefully when) the market recovers and values rise as these funds will no longer be in your account.

That’s right – taking a loan now will probably lock in a loss you will never recover on top of at least doubling your effective tax bracket on the amount of the loan. If you knew these terms before you initiated the loan would you really do it? I hope not.

The only thing worse than a loan is taking another loan after the first one is paid off as this means that you are potentially taxing those same funds yet another time.

Hold that thought. On further review there is one scenario worse than even a second loan: multiple loans outstanding at the same time. Participants who engage in this practice catapult themselves to a tax bracket that exceeds the wildest dreams of the IRS (paying taxes over and over on the same funds for 30, 40 even 50 years before the final round of taxes at retirement).

Do you have the ability to take a loan from your 401(k)? Probably. Should you do it? If at all possible, no.

Marshall J. Cobb, CRSP, is president and founder of Cobb Retirement Solutions, LLC., an independent, fee-only firm offering qualified plan analysis and oversight exclusively to corporations and organizations. Cobb’s first-hand knowledge as a veteran representative of retirement plan vendors beginning in 1990 gives him a unique perspective as he advises his clients. Cobb runs his office -- based in Houston, Texas -- with employees and clients across the country.

31-Oct-08 9:00 AM

That's Not the Date I Targeted

noemail@cobb-retirement.com — Fri, 31 Oct 2008 15:00:00 GMT

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That's Not the Date I Targeted

By Marshall Cobb

A year ago you picked the 2040 fund in your 401(k) plan. It was advertised as the easy, auto-pilot choice for someone with a little more than 30 years left until retirement. Best yet, the fund slowly grows more conservative as you close in on the year 2040, protecting you from being too aggressive as you approach retirement.

What could go wrong?

Quite a bit -- based on the performance you’ve experienced in 2008. Your target date fund is likely well diversified amongst the various asset categories, but diversification doesn’t add a lot of value when everything is down. It’s a rare occurrence, but it’s absolutely true that all segments of the U.S. stock market are down year-to-date. On top of our domestic woes, we find that the foreign markets, whether developed or developing, are also significantly down in 2008 (some much more so than the U.S. markets).

Keep in mind that your 2040 fund is counting on the fact that you’ll continue to work for more than 30 years before you need to withdraw the funds. With that lengthy time frame in mind it has likely placed more than 85% of its assets in the stock market (foreign and domestic). Even the smidgen currently invested in bonds isn’t free from harm, as a lack of faith in corporations has dealt a significant blow to the value of corporate bonds.

In fact, the only major investment categories typically found in 401(k) menus not down this year are money market, stable value and government bond funds. Because these categories take so little risk, they generally pay the lowest returns. That’s even more so the case in 2008 as the buying pressure being put on money market and government bond funds has driven their yields to levels where the return is akin to burying it in your backyard (assuming that your backyard is backed by the government).

Your 2040 fund will almost certainly not sell its holdings in the stock market and turn to money market and bond funds. Your fund was built around the idea that stocks will outperform bonds and cash in the long haul. Your 30-year period definitely fits anyone’s definition of a long haul so stocks will make up the majority of the fund until well in to the 2030s. In fact, your 2040 fund manager is likely looking upon this as a fantastic buying opportunity with so many stocks at prices that haven’t been seen in years.

Does your 2040 fund manager’s dedication to his methodology give you comfort? Probably not at the moment – and that won’t change until the stock market finally stops going down. You should brace yourself for the fact that a prolonged downturn in the stock market likely means that your fund will continue to lose its value for some time to come.

None of this sounds like good news. That is, unless you agree with the manager of your fund. If you do, then it’s fair to say that you too feel that this is a fantastic buying opportunity and you’re more than willing to continue to buy more shares of the fund as this will only add to your gain when this market cycle comes to a merciful conclusion.

What if you don’t agree with your fund manager and instead believe that these market conditions will continue indefinitely? If that’s the case you have some hard choices to make. You can sell your remaining assets in the 2040 fund and move to something significantly safer like money market, stable value or government bond funds. Once you sell, you’ve locked in your rather significant loss and you will never see that money again. You will also earn a rate on your assets that, if you’re lucky, might keep up with the rate of inflation. Maybe.

You have other options as well. For example, you may have chosen the 2040 fund because it fits your age but find that it simply takes too much risk for your comfort. If that’s the case you may consider keeping your existing assets within the 2040 fund but putting new contributions to a version of the fund – let’s say the 2015 fund – that probably has 20 – 25% less invested in the stock market. No, the 2015 fund doesn’t match your age but it might match your risk tolerance. More importantly, it will still continue to make purchases into the stock market (albeit on a smaller scale) so you’ll be able to participate in the upside if the markets ever return to normal. Keep in mind that the 2015 fund will likely have the majority of its assets in bonds and cash shortly as it’s meant for people who are retiring in six or seven years.

Another more conservative option would involve keeping your remaining assets where they are (in the 2040 fund) but placing new contributions in a money market, stable value or government bond fund. This alternative would still allow your existing assets to regain their value if/when the markets cooperate but will put new money in a relatively safe spot.

None of these options are easy but it’s your money and, whether you like it or not, your decision.

I should also point out that the percentages I’ve referenced here regarding the amounts invested in stocks and bonds are true of many target date funds. That said, there are a host of vendors offerings these funds and many have deliberately chosen a more aggressive or conservative mix of stocks and bonds (known as the "glide path") for their particular target date funds.

Finally, there is an option that none of us wish to consider but is readily available – delaying our retirement date. You may own quite a bit of the 2040 fund but may have assets that actually put you on track for retirement in the year 2050.

Let’s hope not.

31-Oct-08 9:00 AM

401(k) & Pension Plan Limitations for Tax Years 2009 and 2008

noemail@cobb-retirement.com — Thu, 23 Oct 2008 18:00:00 GMT

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401(k) & Pension Plan Limitations for Tax Years 2009 & 2008

401(k) Plan Limits	2009	2008
401(k) Elective Deferrals	$16,500	$15,500
Annual Defined Contribution Limit	$49,000	$46,000
Annual Compensation Limit	$245,000	$230,000
Annual Catch-Up Contribution Limit	$5,500	$5,000
Highly Compensated Employee	$110,000	$105,000
Key Employee in Top Heavy Plan	$160,000	$150,000

Non-401(k) Related Limits	2009	2008
Defined Benefit Plan Annual Benefit Limits	$195,000	$185,000
403(b)/457 Elective Deferrals	$16,500	$15,500
SIMPLE Employee Deferrals	$11,500	$10,500
SIMPLE Catch-Up Deferral	$2,500	$2,500
SEP Minimum Compensation	$550	$500
SEP Annual Compensation Limit	$245,000	$230,000
Social Security Wage Base	$106,800	$102,000
ESOP Limits Maximum Account Balance Amount for Lengthening of 5-Year ESOP Period	$985,000 $195,000	$935,000 $185,000

Cobb Retirement Solutions, LLC (CRS) is a Registered Investment Advisor. This information has been prepared for your general use based on IRS News Release IR-2008-118. CRS is not the source of this data and therefore cannot warrant its accuracy. Please note this information is not intended to be tax or legal advice – which CRS does not offer. Please consult your tax or legal professional for any specific questions you may have.

23-Oct-08 1:00 PM

More Fear for 401(k) Vendors Than Participants

noemail@cobb-retirement.com — Mon, 20 Oct 2008 19:00:00 GMT

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More Fear for 401(k) Vendors Than Participants

By Marshall Cobb

Who hates your most recent 401(k) statement even more than you? The vendor who mailed it to you.

The business of keeping up with you as a participant, including the need to offer you a state-of-the-art website, quarterly statements and a call center to answer you in your time of need is not cheap. When you include the need to track all of the various times that money has entered your account and the various types of these contributions (401(k) deferral, Roth 401(k) deferral, employer matching, rollover, etc.) it’s easy to see why this is an expensive process. Many companies who offer 401(k) recordkeeping do so for what could be considered at best a break-even proposition.

The vast majority of companies involved in the 401(k) business are paying their proverbial rent and, hopefully, making somewhat of a profit off of one thing: your assets.

More details on how that process actually works can be found in some of our recently published articles on revenue sharing: When Investing Meets Revenue Sharing Part 1, Part 2, and Part 3.

If these companies are making their money from your assets – they are – and collectively assets in 401(k) plans are down in the neighborhood of 30% what does this say about the near term financial health of the 401(k) industry? In short, the prognosis is not good. Not good at all.

This is especially true of 401(k) providers who are part of a public company. The Street wants earnings. In normal times it wouldn’t be too far-fetched to expect a 10% increase in the gross revenues of a 401(k) provider’s bottom-line. This 10% would come in the form of new employee and employer contributions as well as the expectation that the existing assets might actually increase.

When this 10% growth expectation meets a 30 – 40% decline it’s anything but a happy event for all involved.

There has already been a great deal of consolidation in the industry as many companies that previously offered 401(k) recordkeeping couldn’t find a way to make it a profitable venture. The larger firms that have found a way to make money buy up these failing operations and have become even larger. This same thing has happened with the health care vendor industry.

What does this mean to employers sponsoring a plan and, more specifically, for those of us who are participants? I do think we’ll see consolidation at an even greater pace than before (one that comes to the forefront involves two banks that are scheduled to become one very shortly – both banks currently have their own 401(k) products and recordkeeping).

I also think that service will suffer in the near and mid-term. 401(k) providers are already pulling personnel away from their regular duties to man the 800 lines (the lines are flooded with callers concerned about their accounts). Compound this issue with the very real concern that many of these employees will soon have about their jobs and you have a recipe for something – but it’s not quality service.

Finally, I believe the vendors that remain in the business will have to increase fees to maintain anywhere near their current levels of profitability. Some may act on this sooner than others but few businesses can handle a 30% drop in revenue. Some 401(k) providers will likely attempt to address the shortfall by cutting staff, which will further compound the service issue.

With all of this in mind it’s very fair to say that your last 401(k) statement was bad news for everyone involved with it.

20-Oct-08 2:00 PM

Bust Boom Bust

noemail@cobb-retirement.com — Mon, 13 Oct 2008 14:00:00 GMT

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Bust Boom Bust

By Marshall Cobb

It was only a few years ago that the ongoing debate regarding the Social Security system’s funding deficit – and the proposed remedies -- dominated the headlines. Our newly re-elected president made bold promises regarding the expenditure of his new-found political capital on this very point. His favored solution involved reductions in benefits that would be overcome by increased performance. This increased performance would come in the form of exposure to the stock market.

At the height of this debate, many news organizations stuck microphones in front of pedestrians and asked them if they felt they would do better investing their social security contributions as opposed to leaving the system as it is. In the majority of these drive-by interviews, the response was a resounding yes – I can do better if only I had control over my money.

For a variety of reasons that solution never came to fruition. If it had I wonder how much more angst and agony would be piled upon the bonfire that is our current financial crisis.

The fundamental problem with projecting future performance is that it’s based on past performance. Any investor who has ever made an investment should be familiar with the required, timely and true disclosure: past performance is not an indication of future results.

It is true that returns, when viewed over the long term (at least 15 years), are universally positive within any category of the stock market. Believe it or not, that is true even when looking backward from the lowly markets we view in October of 2008.

It is equally true that I might pass for a male model – if viewed by the naked eye at a distance of at least 200 yards. Sadly, this illusion is shattered once the distance closes to something in the neighborhood of 50 yards. Ok, 100 yards.

Similarly, lofty returns bandied about regarding the markets seem wonderful when viewed at the distance of a 15- or 20-year perspective. The problem is that these returns, like my doomed modeling career, often come crashing down when viewed up close, i.e., in the near term.

In October of 1987 I was a sophomore in college. I was, at least in my own mind, king of the world. The same can not be said for the stock market as the Dow shed more than 22% of its value in one particularly memorable day.

Sadness and doubt ensued.

The market had fits and starts for a number of years after this particular bust. It was in this period that I began my career in the financial industry (I’m not taking credit or blame for what has happened since). Then, amazingly, we embarked upon a period of unprecedented, earth-shattering returns in the latter part of the 90’s. Most of us will reflect on this brief period as the "dot-com boom" where almost any bet paid handsomely.

This boom turned to bust in April of 2000 and several sad, painful years followed.

About the time that all hope had been effectively lost (fall, 2002), we began to see brief glimpses of life in the equity markets. This life took hold and began another period of breath-taking returns that lasted all the way until the summer of 2007.

As we also now know, the doldrums of summer/fall 2007 have come home to roost with a vengeance in the form of our current plunge. I would like to hold out hope that October of 2008 is the bottom of this latest downturn, but hope is a rare, slippery commodity in these dire times.

Will the markets ever go up again? History would tell us yes (keeping in mind that pesky disclosure regarding history/past performance).

What, if anything, should the average investor take from the roller-coaster ride that was this past 20+ years? Simply put, it doesn’t pay to get too happy. I will explain…

As investors, and employees, we are now increasingly charged with our own destiny when it comes to our retirement -- a la 401(k)s. As all-too-many retirees (and would-be retirees) can now relate, timing is everything. Cashing in your chips in 1999 had a completely different (better) outcome than trying to start life as a retiree in 2002.

This is not news – at least it shouldn’t be. Up periods are always followed by downturns – and vice versa.

The only solution to this boom/bust cycle for the average investor is to lower your expectations. There is nothing wrong with a 7% return. In fact, I would wager that the majority of us would gladly accept that return at the moment.

One way to accomplish more stability in your returns is to sell when things are up. Specifically, if you own a fund that goes up 15% in a year it might be a good time to sell a significant portion of that fund (at least the portion that represents your profits). This is called rebalancing. It’s not a new idea, but no one likes selling a winner. It takes some discipline to keep to this strategy.

Further, all involved need to recognize that allocating your investments in a way that achieves a 15% - 20% return in a good year invites the very real possibility of an even greater negative return in a down year. If that down year is followed by another down year, then you’ll likely give back all of your gains and a fair amount of your principal.

It would be nice if the real-time, present-day returns always equaled those historically generated over a 15- or 20-year period. It would also deepen the talent pool quite a bit if GQ cover photos were taken at a distance of 200 yards (yes, I am available – at that distance).

Sadly, neither is true. Unless you wish to repeat the bust/boom/bust cycle throughout your life you are going to have to try a different approach.

13-Oct-08 9:00 AM

Put Your Money (What's Left of It) Where Your Mouth Is

noemail@cobb-retirement.com — Tue, 07 Oct 2008 16:00:00 GMT

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Put Your Money (What's Left of It) Where Your Mouth Is

By Marshall Cobb

Yesterday was an alarming day on top of an already alarming month.

Bill Gross, one of the most respected investment managers in the marketplace who is noted for his macro-economic bets, had this to say in the close of his October 2008 Investment Outlook piece: "Stay liquid, remain in high quality. It is prudent at the moment to fear McFear itself."

Yes, the reference he utilized regarding the McDonald’s drive-through made the punch line. The entire column is, as always, worth the read and the McDonald’s reference works – though you won’t want to eat after reading the column. This is not by any means a positive outlook. See for yourself:

http://www.pimco.com/LeftNav/Featured+Market+Commentary/

Compounding my unease at reading dire forecasts from an investment manager I highly respect is the fact that Jim Cramer (of Mad Money fame) actually said the following when interviewed yesterday on the Today Show, "Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now."

It’s considered bad form in the investment world to scream fire in a crowded theater. Mr. Cramer took great offense earlier in the year when he was accused of making overly positive comments about the health of Bear Stearns. His explanation for his comments (I’m paraphrasing) was that he was speaking of deposits at Bear Stearns (not the health of the organization) and that, more importantly, he would never say anything that might cause a run at the bank.

With that as a backdrop, it is especially alarming that Mr. Cramer would now feel compelled to encourage investors with less than a five year horizon to pull their money from the stock market regardless of the loss incurred. Perhaps Mr. Cramer should re-examine his use of the word never.

So, we have some very public statements from some folks in the spotlight painting an even darker picture than we might have otherwise guessed.

What do I think? For starters, I know that there isn’t any one person who has the full scale and scope of this problem in hand. This is a massive, global crisis with a closet full of shoes left to drop.

Through yesterday I continued to hope that the bail-out package and other actions taken by governments around the world would enable the markets to – eventually -- regain their footing. I didn’t have high hopes for the near-term, but I did feel that the mid-to-long term horizon offered hope.

Unfortunately, I believe messages like the one delivered to millions of viewers at once by Mr. Cramer extinguish any hope we might have had for the near-to-mid-term. Under the crushing weight of doubt and pessimism, it is unclear how anyone could see light at the end of the tunnel that doesn’t come accompanied by tons of steel and a billowing smokestack.

Right or wrong, it’s no longer possible to be an optimist when the selling pressure alone will continue to drive down prices. I won’t lay the blame at the feet of our aforementioned friends in the financial/entertainment business but I do think their sentiment adds fuel to an already out-of-control fire.

I now feel that it’s a certainty that the buy-and-hold strategy (for stocks) normally employed within retirement plans will be rewarded with losses for a sustained period of time.

Each investor must now choose their comfort level with the new reality. Do you understand how you are currently invested? Do you know the difference between stocks, bonds and cash? What is your retirement horizon (now, not what you thought it was last month)? Can you take watching your account go down day by day for months or even years to come while putting in new dollars at these new lows hoping for the eventual rebound?

These are hard questions for hard times. My shop is ready and willing to help our clients with the analysis of their portfolios and their risk posture. Please don’t ask us about the crystal ball – it came down with a case of McFear.

7-Oct-08 11:00 AM

What I've Learned

noemail@cobb-retirement.com — Thu, 02 Oct 2008 15:00:00 GMT

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What I've Learned

What I’ve Learned

By Marshall Cobb

It’s the evening of October 1^{st, 2008.}

As I write this I’m reminded of the many conversations I’ve had over the past few weeks. The party on the other end has varied dramatically: participants worried about losing their retirement, employers worried about the investments they are offering their participants and, of course, money managers, who are worried that they might say or do something that might leave them liable down the road.

I too have a healthy dose of worry.

I worry that most of the participants I’m speaking with weren’t properly diversified prior to this and that their fear (probably a more accurate word than worry) will drive them to rash decisions -- costing them even more money in the long run. I worry that employers will make hasty decisions about the investments within their plans without thinking about these events in the long term. I worry that many of the investment firms out there are holding back information that we need to make informed decisions. Worse yet, I worry that many of these investment firms are just as much in the dark as the rest of us.

The fact that these dramatic days in the market are taking place in the midst of a heated Presidential campaign makes it all the worse. Hype was already the word of the day. The mixture of the financial crisis and politics has created a whirlwind of information, advice and, of course, fear-mongering on a level that I hope is never seen again.

There are too many players and too much mis-information in play to ever think that we’ll get a straight answer as to who or what is to blame. The debate will rage on for years and the answer you decide upon will likely be based more around your preference in news sources and less around the facts (or opinions posing as facts).

That said there are some things that we can all take away from this situation right now, including:

People within 10 years of their date of retirement should not have more than 65-70% of their assets in the stock market. Many of those hardest hit had 90 – 100% of their assets in stock and are well in to their 60’s. It seemed like a great idea when the markets were doing well. The opposite is also very true.
TV can be a great source of education – but most of us aren’t watching those channels. The majority of the participants I speak to can’t explain the difference between a stock and a bond, yet make significant financial decisions based on comments from talk show hosts and their guests. How can you analyze the entertainment/opinion if you don’t understand the terminology? Remember: many of these same shows believed with great conviction that gas would be over $5 a gallon by year-end.
There is a reason that bonds exist. They aren’t exciting and won’t make anyone rich overnight, but those individuals with significant amounts of bonds in their portfolios right now are actually talking about gains – not losses (unfortunately it’s too late to jump on that band wagon at the moment because of soaring bond prices).
Placing large amounts of your retirement money in your company’s stock can make you a fortune – it can also wipe out that same fortune in the span of a few hours.
The name of your mutual fund doesn’t protect you. Big, well-known companies have suffered (and disappeared) over the past few weeks. Now more than ever the important question is what the fund is invested in – not what it’s called.
Your home is your residence first and foremost. You may be fortunate to sell it for a profit in the future, but that is by no means guaranteed.
Taking a loan from your 401(k) is a terrible idea for a number of reasons – including the fact that you will pay it back with after-tax dollars and then pay taxes again when you pull these funds out at retirement. This wasn’t a good idea before the crisis. It remains a bad idea.
Good credit is a must. Banks will use any excuse available to decline a loan in the next 12 – 24 months.
The only thing that trumps greed is failure. Trusting those with their hand in the till to self-police is an idea that has never worked. Remember, we’re about to bail them out for something a little shy of a trillion dollars.

None of these thoughts are new or original, but if you keep them in the back of your mind, you just might find a way through this crisis and the one that follows. Yes, there will be another one. There always is.

2-Oct-08 10:00 AM

What is a Stable Value Fund?

noemail@cobb-retirement.com — Tue, 02 Sep 2008 14:00:00 GMT

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What is a Stable Value Fund?

If you’re a participant in a 401(k) plan there’s a better than average chance that you have the option of investing in a stable value fund. There’s an equally likely chance that you don’t know what a stable value fund is.

In education meetings they are typically described as something "close to a money market fund." Let’s take that statement at face value and look at some of the specifics:

Money market funds are invested in short term, high quality, highly liquid investments such as certificates of deposit and t-bills (and have an average maturity that is typically 90 days or less). Stable value funds are invested in a range of intermediate bonds as well as the general accounts of insurance companies (with average maturities of up to five years).
Money market funds, as short term investments, are immediately impacted by changes in interest rates (you may recall that not too long ago it was very possible to receive a rate of 4 – 5% on a money market fund; that same fund as of September, 2008 probably pays more in the range of 2%). Stable value funds purchase insurance "wrap" contracts and credit today’s rate based on a blend of past and present interest rates.
Money market funds are typically offered to the general public as well as retirement plans. Money market funds are mutual funds and, as registered products, can be purchased in any type of account. Stable value funds are not mutual funds. Stable value funds are collective investment trust products offered only within qualified retirement plans (like a 401(k)).
Money market funds and stable value funds may both invest in bonds offered by the U.S. government, but neither type of investment offers a guarantee of principal (there are a few exceptions to this rule on the money market side of the equation).

In short, stable value and money market funds have more differences than similarities. These differences do not necessarily make one better than the other but it is fair to say that the average stable value fund should credit a higher rate of interest than the average money market fund over the long haul.

That said: neither of these investment types is designed to significantly outperform inflation. To put it another way, they are both parking spots for your money that offer less risk and significantly less return than the other options within your menu.

As always, please make sure that you read up on all of the specifics of any investment before you buy it.

2-Sep-08 9:00 AM