Strategies for Investing Your HSA

3 min read

30 sec brief

One of the biggest benefits of a HSA is that you can use it to invest funds for the future. We touch on a few different strategies that you can use to invest your HSA dollars in this article.

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, investing your HSA in stocks or bonds (or a mix!) may be worth considering.

An HSA can be a fantastic way to build a pot of tax-free dollars you can use to pay for health care 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 will likely produce bigger returns for you decades from now. Sure, with stocks there will definitely be periods when your account value will decline. But if you don’t intend to use the money for at least 10 years, investing it in stocks and bonds will likely produce higher returns than keeping it in a low-yielding cash bank account or money market mutual fund.

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

Strategies 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).

  • 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.
  • 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. Keeping a portion of your long-term portfolio in bonds 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.
  • Get some automated allocation help. Another option is to use a so-called robo-advisory service that charges a fee (0.30 % of assets per year is typical) to manage the asset allocation based on how you answer a slew of questions-and also rebalance your portfolio when necessary.
  • Hire a pro. If you are investing your HSA for retirement, you might want to 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.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, 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 tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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