Stable Value Fund Group Makes Pitch to Risk-Averse Millennials

Regardless of how much they're holding in money market funds, though, millennials could be getting better returns in a lower risk investment, according to Mitchell. "Money market funds are getting really, really low returns," she said. "Stable value's returning 190 basis points compared to that one basis point you may be making in a money market fund."

Those higher returns combined with similar risk levels and liquidity found in money market funds make them great for risk-averse investors, according to Mitchell, but what makes them ideal for millennials is that it exposes them to investing in a safe way.

"One of the great things about stable value is that it's a great entry point for millennials because it has a loose relationship to equities," she said. "They can use it to get comfortable investing in equities in their 401(k) plan."

Millennials are facing a lot of challenges that make them less comfortable with riskier investments like equities.

"This group has seen what's happened with the financial crisis in 2008, what happened with their parents. They've been saddled with debt from their education. They have goals [like] homeownership, and that's getting harder to do because you have to save more, get a bigger down payment," Mitchell said.

Despite those challenges, younger investors are still investing in equities. According to the Investment Company Institute, 20-something investors had 36% of their assets in equities and company stock, and 46% in target-date funds. "All told, participants in their 20s had 73% of their 401(k) assets in equities," according to the 2014 ICI Fact Book.

Mitchell noted that "target-date funds are great as a default investment for people who don't want to do it all themselves." While stable value is generally offered outside of a target-date fund, she said, it can also be included in a custom TDF.

"We're seeing a lot of the big plans actually use stable value in their target-date fund," she said. "It helps in that glide path. It's a great diversifier, so it smooths out the volatility of the financial markets, particularly with equities."

Consequently, plan sponsors are using stable value more frequently in their target-date funds, balanced funds and managed accounts, Mitchell said.

— Check out Time to Consider Alternatives to Money-Market Funds on ThinkAdvisor.