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October 07, 2001 at 08:00 PM
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The strong performance of stocks in the 1990s left a majority of 401(k) plan advisors and participants leaning toward stocks and stock funds, away from guaranteed investment contracts and other stable value options.
The latest complete figures available show that, in 1999, 401(k) plans had invested only 10% of plan balances in GICs, and 53% in equity securities, according to the Employee Benefit Research Institute, Washington.
Today, attitudes toward GICs may be starting to change.
Peter Bowles, president of Fiduciary Capital Management Inc., Woodbury, Conn., sees two factors helping sales of GICs: gray hair and the Federal Reserve Board.
“As the baby boomers are beginning to approach retirement, they are looking for stable value funds,” Bowles says.
Meanwhile, a combination of Fed rate cuts and market volatility have also added to GICs appeal, Bowles says.
The spreadthe difference between the yield rate on Treasury bonds and the interest rate paid by GICshas been widening.
“Consequently, the GIC yield curve became more positively sloped, with the difference between three- and 10-year contracts increasing to 132 basis points, compared to 88 basis points at the end of first quarter,” Bowles says.
