Stable Value Funds Outperform Money Markets in 2025

Retirement savers hunting for better yields than traditional savings accounts found an unlikely winner in 2025. Stable value funds-those quiet workhorses tucked away in many 401(k) plans-delivered returns that left money market funds in the dust.

The numbers tell a compelling story. According to data from the Stable Value Investment Association, the average stable value fund returned 4. 8% in the first three quarters of 2025, compared to roughly 4. 2% for prime money market funds over the same period. That 60-basis-point gap might seem modest at first glance. But compound it over a decade, and a $100,000 investment grows to $159,000 in stable value versus $151,000 in money markets. The difference buys a decent used car.

What Makes Stable Value Different

Stable value funds occupy a peculiar niche in the investment world. They hold high-quality bonds-typically investment-grade corporate debt and government securities-wrapped in insurance contracts that smooth out the bumps. These “wrap contracts” provided by banks and insurance companies guarantee that participants can transact at book value, effectively eliminating the price volatility that plagues traditional bond funds.

This structure creates something unusual: a fixed-income investment that acts more like a bank account. Principal stays protected - interest accrues steadily. No mark-to-market surprises when the Federal Reserve decides to move rates.

The catch? Stable value funds exist almost exclusively inside employer-sponsored retirement plans. You won’t find them at Fidelity or Schwab for your IRA. That exclusivity stems from regulatory distinctions-the SEC treats them differently than mutual funds, and the wrap contract providers require institutional arrangements to manage their risk.

Why 2025 Favored Stable Value

The outperformance this year reflects a delayed reaction to the Fed’s 2022-2023 rate hiking campaign. Here’s why.

Money market funds adjust almost instantly when rates change. They hold very short-term paper-Treasury bills, commercial paper maturing in weeks or months. When the Fed cuts, money market yields drop within days.

Stable value funds move slower. Their underlying bond portfolios have average durations of 2-4 years. When rates spiked in 2022-2023, those funds were stuck holding lower-yielding bonds bought earlier. The crediting rate-what investors actually earn-lagged behind money markets for a painful stretch.

Now the tables have turned. With the Fed cutting rates twice in 2025, money market yields have declined sharply from their 2024 peaks. Meanwhile, stable value funds still hold bonds purchased when yields were higher. The Morningstar research team noted in October that the average stable value portfolio contains securities with embedded yields of 5. 1%, creating a cushion that will take years to fully roll over.

David O’Meara, head of investment strategy at Willis Towers Watson, put it simply in a recent industry webinar: “Stable value investors are getting paid to wait. The crediting rate formula means today’s investors benefit from yesterday’s higher rates.

The Fee Advantage Often Overlooked

Expense ratios matter more than many investors realize. And stable value funds frequently win this comparison too.

The typical money market fund in a 401(k) plan charges between 0. 15% and 0 - 40% annually. Stable value fund fees vary widely but average around 0. 30-0. 50% when combining management fees and wrap contract costs.

That looks like a wash-or even an advantage for money markets. But here’s the wrinkle: many plans negotiate institutional share classes that slash these costs dramatically. A 2024 survey by NEPC found that 68% of stable value offerings in large plans carried all-in costs below 0. 35%.

The real comparison should be net returns after fees. And on that basis, stable value has maintained its edge consistently over rolling five-year periods, according to data from Hueler Analytics, the industry’s primary benchmarking service.

Risks That Don’t Disappear

No investment offers free lunch. Stable value funds carry risks that participants should understand, even if those risks rarely materialize.

Credit risk exists in the underlying bond portfolio. The wrap contracts don’t protect against actual bond defaults-they only smooth out price fluctuations. During the 2008 financial crisis, several stable value funds experienced stress when Lehman Brothers bonds in their portfolios defaulted.

Wrap provider risk deserves attention too. If an insurance company or bank providing the wrap contract fails, the guarantee could prove worthless. Most stable value funds diversify across multiple wrap providers to mitigate this concentration.

Liquidity constraints represent the most practical concern for participants. Plan sponsors can impose restrictions on moving money out of stable value-typically requiring a 90-day “equity wash” before transferring to competing options like money market funds. These provisions protect the fund from rapid outflows that could force disadvantageous bond sales.

And there’s opportunity cost. In years when stocks return 20%, that 4. 8% stable value return looks pretty pedestrian. These funds serve as ballast, not growth engines.

Who Should Consider Stable Value

The ideal candidate for stable value allocation has a clear profile. Near-retirees seeking to reduce volatility in their final accumulation years often benefit most. A worker five years from retirement might reasonably hold 20-30% in stable value as part of a diversified conservative allocation.

Target-date fund investors sometimes don’t realize they already own stable value. Many target-date series incorporate stable value in their bond sleeves, particularly in vintages designed for participants near or in retirement. Checking the fund’s underlying holdings reveals whether this exposure already exists.

Investors using stable value as emergency reserves within their 401(k) should verify the plan’s transfer rules. That 90-day equity wash provision could prove inconvenient if funds are needed quickly.

One group should probably skip stable value entirely: young workers with decades until retirement. The long-term return differential between stable value (historically 4-5% annually) and diversified equity portfolios (historically 9-10%) compounds into enormous sums over 30-40 year horizons. A 25-year-old maximizing stable value allocation is almost making a mistake.

The Outlook From Here

Projecting stable value returns requires guessing where interest rates head next. And nobody does that reliably.

But the mechanical nature of crediting rates provides some visibility. The embedded yield in most stable value portfolios suggests crediting rates will remain above 4% through at least mid-2026, even if the Fed continues cutting. The roll-over happens gradually as older, higher-yielding bonds mature and get replaced with new purchases at current rates.

Money market funds offer no such lag. If the Fed cuts another 100 basis points by year-end 2026-as futures markets currently price-money market yields could fall below 3. 5%.

That widening spread would extend stable value’s performance advantage into next year. Eventually, the gap closes as portfolios fully adjust to the new rate environment. But “eventually” might be 2027 or beyond.

Checking Your Options

Not every 401(k) plan offers stable value. Smaller plans often lack the scale to negotiate competitive wrap contracts. A 2023 Plan Sponsor Council of America survey found stable value availability in 67% of plans with over $200 million in assets but only 34% of plans under $10 million.

Participants can find their plan’s investment options in the quarterly statements or through the plan’s online portal. The fund might be labeled “Stable Value,” “Fixed Income Fund,” “Principal Preservation,” or something similarly conservative-sounding. Reading the fund fact sheet confirms whether wrap contracts are involved-if so, it’s stable value.

Those whose plans lack stable value might consider requesting it. Plan sponsors do listen to participant feedback, particularly when multiple employees express similar preferences. The switch requires administrative work and negotiation with providers, but the cost savings and return benefits can justify the effort for plans of sufficient size.

For now, stable value funds continue earning their keep as the unglamorous but effective component of many retirement portfolios. In a world obsessed with meme stocks and cryptocurrency speculation, there’s something almost quaint about an investment designed simply to preserve capital and deliver steady income. But quaint doesn’t mean obsolete - sometimes boring outperforms.