Short sales, hedge funds, and stable value funds
In February and March of 2020, you sent out emails saying “you can’t hide in bonds” and saying to move from bonds to a safer place, such as stable value funds. I researched stable value funds. The way they manage their money was somewhat mysterious to me, such as the use of insurance wrappers. Nevertheless, I moved a good chunk of my retirement funds from bonds to stable value funds. Now, today (1/28/21) you sent out an email about hedge funds taking a beating due to short sales. So now I am wondering whether stable value funds use hedge funds and/or short sales, and if so, whether I can expect to take a loss on this money in a so-called safe place. Thank you.
Terry Says
Whew — you are definitely confused. I would love it if you would go on Amazon and get a copy of the new edition (34d) of The Savage Truth on Money. There you can read everything you need to know about “chicken money.”
I’ll try to take your points one-by-one (and I admit I was confused by the title of your question!)
First, go back and read the article on bonds. I said that even top-rated bonds can and will lose market value when interest rates, in general, rise. 9No one will pay you $1,000 for your old 2% bond if rates rise to 4%. You can hang on to the bond till it matures and get your entire principal back. But in the meantime you’re getting a lower-than-market interest rate!
Many corporate 40l(k) plans do not offer the safety of a money market fund. But many DO offer something called a “stable value fund”, which as you correctly researched is basically an insurance company contract, at a slightly higher yield than a typical MM fund. (Remember, retirement plans are designed for long term growth) So if you are looking for a place to “hide” ata least some of your money from market volatility inside your company retirement plan, a stable value fund is likely your only choice.
ALL THAT HAS ABSOLUTELY NOTHING TO DO WITH HEDGE FUNDS!!!! Hedge funds are private investment partnerships offered to “accredited” (which means wealthy and smart) investors. You obviously don’t qualify! Please read my book. It is far cheaper than a heart attack!!
