Investors tend to spend most of their attention on equity funds, leaving one common 401(k) option largely ignored.
But for millions of Americans approaching retirement, this one fund category could separate a portfolio that survives a downturn from one that forces a return to work.
Franklin Templeton is making the case for stable value funds, a capital preservation option the firm says deserves far more attention from retirement savers and the employers who build their plans.
Retirement Strategist Mike Dullaghan argues that today’s interest rate environment has turned a sleepy menu fixture into a real driver of long-term retirement outcomes, in Franklin Templeton’s commentary ‘Why Stable Value is Critical in Retirement Plan Menus.’
Stable value funds now hold $841 billion in retirement assets
Stable value funds held roughly $841 billion in participant assets as of December 31, 2024, according to the Stable Value Investment Association.
They are investment vehicles available exclusively in tax-qualified retirement plans such as 401(k)s and 403(b)s.
They hold portfolios of high-quality, short- to intermediate-term bonds with an average duration of two to four years, combined with insurance contracts that protect participants’ principal from daily market swings, the Franklin Templeton analysis explained.
Zach Gieske, president of the Stable Value Investment Association, notes stable value has historically beaten cash alternatives while shielding investor capital.
Over time, stable value has consistently outperformed money market funds while delivering principal protection and steady returns
The insurance component, known in the industry as a “wrap,” allows these funds to maintain a constant net asset value, meaning your account balance never dips below what you contributed plus earned returns.
That structure gives stable value the price stability of a money market fund with the return potential of an intermediate-term bond portfolio, the firm indicated.
Higher interest rates transformed capital preservation math
Franklin Templeton’s central argument centers on what changed after the Federal Reserve ended its extended period of near-zero interest rates.
When cash yields averaged 0.25% for nearly 15 years, the differences between capital preservation options were negligible over a 30-year time horizon, the firm’s analysis showed.
When the Federal Reserve finishes its current rate-cutting cycle, short-term interest rates could revert closer to their long-term average of around 3%, a level that can materially affect how much a participant accumulates by retirement, Franklin Templeton noted.
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At that yield level, even small differences in returns between a money market fund and a stable value fund compound into significant gaps over decades of saving.
A participant choosing one capital preservation option over another at age 35 could see tens of thousands of dollars in divergent outcomes by age 65, depending on yields and contribution levels, the analysis indicated.
“It’s important to have a well-diversified investment mix, including a guaranteed asset class, which can help buffer against market volatility,” said Jim Mullery, executive vice president of retirement solutions at TIAA, in a statement reported by PlanSponsor in April 2025.
Money market funds briefly outpaced stable value for the first time in 15 years
Stable value funds have historically outperformed money market funds across more than four decades, Franklin Templeton reported. The exception came during the Fed’s aggressive tightening cycle starting in 2022.
Money market fund yields reacted almost immediately because those funds hold short-term securities that reprice within days. Stable value funds, with longer-duration portfolios, could not turn over holdings as quickly.
Money market yields surpassed stable value returns for the first time in over 15 years, and Franklin Templeton argues the inversion was predictable and temporary.
As the Fed normalizes rates, stable value funds are positioned to regain their historical return advantage, the firm projected.
Market volatility sent record inflows into capital preservation in 2025
The first quarter of 2025 produced some of the highest levels of participant trading activity in defined contribution plans since 2020, with significant asset flows directed toward fixed income and stable value options, according to Fiducient Advisors’ Feb 2026 analysis of Alight Solutions 401(k) Index data.
TIAA reported that its flagship stable value offering, TIAA Traditional, experienced its greatest inflows since March 2020, reaching a five-year high that included record daily and monthly inflows in early April 2025, PlanSponsor confirmed.
Sean McCaffery, principal and senior defined contribution research specialist at Fiducient Advisors, noted that aging participant populations with larger account balances may place even greater emphasis on capital preservation options within their retirement plans.
That trend aligns with Fidelity’s first-quarter 2026 retirement analysis, which found that half of 401(k) participants aged 70 and older hold more equities than the firm recommends, underscoring how many near-retirees may be underweight in capital preservation vehicles.
What stable value means for your 401(k) allocation
Stable value funds fill a role that neither stocks nor traditional bond funds can replicate inside a retirement plan. Intermediate-term bond funds carry a floating net asset value and expose participants to daily price swings.
Stable value, by contrast, maintains a constant $1 share price through its insurance wrap structure, Franklin Templeton explained. Market value gains and losses in the underlying bonds flow through the crediting rate rather than the share price.
For participants approaching retirement, Franklin Templeton’s commentary suggested reviewing the capital preservation tier of an employer-sponsored plan to see whether a stable value allocation serves as an appropriate complement to equity and bond holdings.
Related: What to Know about Including Annuities in Your 401k
