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A reader wrote in about the benefits of investing in stable income funds. These types of funds have risk and return a little higher than your average money market fund. The fund’s goal is to maintain the principle of your investment at $1.00, no more, no less.

How does this help me?

In company sponsored 401(k) or 403(b) plans, the employee’s contributions are directly invested into a series of funds, resulting in no option to have a portion of the funds sit in a savings or money market account. A stable income fund your solution to this limitation.

If you are actively watching the market, and feel that it will continue to decline, re-allocating your 401(k) contributions to include a stable income fund may be a good idea for you. I have checked the account from my company which is held at Fidelity. It has an investment called “FIDELITY MIP II CL 3″ under the fixed income/managed income category.  Considering the course of the market so far this year, I wish I have moved all of my 401(k) contributions into this fund in January. I can’t change the past, but I do have control over my future investments. I have changed the allocations I had previously set up for my account to now have 40% of my contributions go into this fund.

Later, when I feel the market is going upward, I’ll re-allocate my future contributions to reduce or eliminate adding to the stable income fund. I will also consider selling out wholly or partially from this fund and buying into the funds that are attractive at that point.

I’m not suggesting you follow in my footsteps, only trying to make you aware of this option. You should never feel like you have no control over a company sponsored retirement plan. It has many limitations, but together we’ll work around them.

Thanks to the reader who wrote in about stable income funds. Keep the comments coming!

UPDATE: On 12/15/08, I have reduced the 40% election to only 10% in order to take advantage of the lower prices in the current market. I will continue having 10% of my future contributions go into this stable value fund.

Related posts:

  1. Calculating 401(k) or 403(b) Contributions
  2. Left your employer without taking your 401K?
  3. Traditional vs Roth IRA Accounts