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If your HSA strategy is to put money in your HSA today and leave it untouched for a decade or more – hint: you’re going to use it to pay for retirement health care costs — you should consider investing your HSA money, rather than sticking with a bank account that pays low interest. Over…
If your HSA strategy is to put money in your HSA today and leave it untouched for a decade or more – hint: you’re going to use it to pay for retirement health care costs — you should consider investing your HSA money, rather than sticking with a bank account that pays low interest. Over time stocks and bonds have delivered stronger returns than cash. You just have to be prepared to ride through periods when stocks lose value. And keep in mind you can always divide your HSA money and keep some in a bank account for current health care expenses, and invest the rest.
4 Steps to Invest Your HSA Money
You can invest your Lively HSA in exchange traded funds (ETFs), mutual funds, and individual stocks and bonds offered through TD Ameritrade. There are no fees from Lively! There are additional fees charged within your investment account at TD Ameritrade. (More on this in a sec).
Step 1: Invest Automatically
The best way to stick to an investment plan is to make it automatic, rather than rely on your best intentions to remember to make an investment at the end of the month, or year. When you set up your TD
Step 2: Diversify
You are in charge of deciding what types of investments you want to own in your HSA.
A portfolio of dozens of stocks (or bonds) reduces the pain of any single investment tanking. Exchange traded funds (ETFs) and mutual funds give you instant diversification, as they typically own hundreds of stocks or bonds.
Another layer of diversification is to consider owning a mix of funds or ETFs that invest in different types of assets. Adding an international fund or ETF to your HSA will give your investments global reach.
Step 3: Use ETFs if you have a small starting balance.
Most mutual funds require an initial minimum investment of $1,000 to $1,500. If you want to create a diversified portfolio of say four different funds, you could need $6,000 to get started.
ETFs have no investment minimums. You can build a diversified portfolio using ETFs right from the get-go.
Step 4: Pay attention to investing fees.
There are costs to investing in funds, ETFs, and stocks and bonds.
Funds and ETFs: TD Ameritrade offers a lineup of funds and ETFs you can buy and sell without paying any sales commission. That said, all funds and ETFs charge an annual fee, called the expense ratio. At TD Ameritrade, you can easily find the net expense ratio of a fund or ETF listed. The lower the better.
Individual Stocks: $6.95 per trade.
Bonds: A flat fee of $25 to buy or sell Treasury securities. The cost of individual corporate bonds is embedded in the price of the bond at the time of purchase.
Fees can make a big difference. The lower your fees the more money that stays in your HSA to grow. If you intend to be a frequent investor, a no-fee fund or ETF that has a low expense ratio will reduce your investment costs.
If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
About the author
Carla translates business and personal finance concepts into engaging content that helps individuals make more confident choices in how they manage their money. Her work appears in The New York Times, Money Magazine, Barron's and Consumer Reports.