A recent survey reported that 95% of Health Savings Accounts are kept in cash, rather than being invested in stocks or bonds. This is a prudent decision if you use your HSA to pay for current qualified medical expenses. Cash accounts don’t lose value, which is key when you need the money to cover current bills. But if you’re interested in using your HSA to save for health care expenses way down the road, you can consider investing your HSA in stocks or bonds, or a mix of the two.

An HSA can be a great vehicle to build up tax-free dollars you can use to pay for healthcare costs in retirement. (Even with Medicare you will still have out-of-pocket costs.)

If you’re interested in using your HSA to fund future health care costs, investing your money in stocks and bonds may produce bigger returns for you decades from now. That's where bonds and cash can work like a floatation device: when stocks are falling, bonds and cash won't. But if you don’t intend to use the money for at least 10 years, investing it in stocks and bonds may produce higher returns than keeping it in a low-yielding cash bank account or money market mutual fund.

Another strategy for managing your HSA funds is to tackle two goals at once: if you want some money to help pay for current medical expenses, you can keep some of your HSA in cash and earmark the rest for long-term investing.

Tips for Investing your HSA

For HSA money you don’t intend to touch for a long time—say retirement—you might consider investing your HSA just like you are with a 401(k) or Individual Retirement Account (IRA).

• You can use mutual funds or ETFs for a diversified portfolio. If you’re already investing for retirement you likely know the diversification ropes: it’s risky to own individual stocks or bonds. A low-cost mutual fund or exchange-traded fund (ETF) gives you instant diversification as each type of investment typically owns dozens, and often thousands, of securities.

• You can pick a mix of stocks and bonds. Over the long-term stocks have historically delivered the highest gains. But owning stocks requires living through periods when they fall in value. That’s where bonds and cash can work like a floatation device: when stocks are falling, bonds and cash won’t. You can keep a portion of your long-term portfolio in bonds, and this can help you sleep better when stocks are falling. You can follow the investing strategy you’re already using with your 401(k) or IRA. Or there are free online calculators that can help you think through what a good mix might be for you. Or you can check out the asset allocation used by a target-date retirement fund (TDF) that reflects your retirement age. For example, if you expect to retire in 30 years you might want to see the mix of stocks and bonds used in a 2050 target-date mutual fund.

• You can get automated guidance. Roboadvisors have become more popular in recent years with investors looking for a more hand-off approach. These platforms help you build and manage a portfolio whose asset allocation is customized to your profile, risk tolerance, and financial goals. The portfolio will be optimized for maximum long-term returns, and come with automatic rebalancing features to keep your portfolio on track over time, even as the market moves. Roboadvisors typically charge a small percentage of your invested assets as a fee, which will vary by platform and sometimes by investment thresholds. Ultimately, they are more cost-efficient than working with a professional.

• Work with a financial advisor. If you are investing your HSA for retirement, consider sitting down with an advisor who can help you create an investment strategy that integrates that account with other investments such as 401(k)s and IRAs.