HSA Investing

[firefly_ris]

Hey all you finance friends, any advice on where/how to best approach invest our HSA account?

 

[Disneefun]

I keep enough to meet our deductible in cash. The rest I invest in the same three-fund portfolio I use for the rest of my investments. (One total stock fund, one bond fund, and one international fund.) The proportions change as we age and our risk tolerance changes. As for where, you may be limited by your health plan to using their brokerage. If you have a choice, I'd go with Vanguard, Fidelity, or Schwab.

 

[RAL710]

Mine is invested a little bit more aggressively than my other accounts. I have not used any of the funds in our HSA yet to pay for any medical costs, but I have kept all of our medical expense receipts as we've had extra cash flow on hand to cover them and I don't think there is a set timetable of when you can pay yourself back with HSA funds. I would definitely max out your HSA if possible as it's a great "triple tax advantaged" account.

 

[_19disnA]

Whether or not to invest your HSA is partly a matter of how much $$$ you have in the fund and how long you think it will last as you pay various medical expenses. Investments can go up as well as down and obviously the company running the HSA wants to make money from your investments. Just because markets are up significantly in the last year or two doesn't mean there also won't be down years in the future. Far too many think markets will always go up and tend to have short memories of how things have gone in the past. Any extended downturn in the markets may have people regretting they invested their HSA in the hopes of big returns while not needing the money.

 

[firefly_ris]

Thanks for the insight so far, a lot to think about. My DH is the one who deals with the HSA directly so I will have him look into any limitations on where to take it.

Is it possible to invest only a portion of it or is that not a thing? Right now I believe there's $20k in there and we have a 6k deductible on our health insurance with yearly physicals and eye exams and generic meds covered as well. I think we have used only about $300 from the HSA over the last 2 years, mostly to pay for my contact lenses. I realize the market can be volatile and don't want to throw caution to the wind or anything, just want to make sure I'm doing my due diligence in trying to get the 401k, IRA and the HSA all working to best potential, or if I should leave the HSA alone. I'm 36 and DH is 40 and in general good health (for now). Also have 3 young children. So not sure if the risk is worth it based on that information.

 

[Disneefun]

Ours allows you to invest as much as you want, subject to the fact that you can only invest after you have $5000 in the account. The plan we had before this one set the limit at $6000. It varies by plan, but AFAIK, you can invest as much as you want, subject to any minimum cash balance requirement.

The way we work it is this: I keep our yearly OOP max in cash in case of catastrophe. Invest the rest. But we pay most of our regular medical bills out of out checking, and just keep the HSA growing. If we had to touch it we would, but since our medical expenses are minimal, we prefer to just let that money grow untouched until we really need it, or we reach retirement age and can then use it for anything. Basically, we treat it as an extra IRA or 401k.

 

[firefly_ris]

Thanks. This sounds like a method that would work for us possibly. Now that all the kids are in school I'm working a lot more, so going forward we won't really need to touch the HSA for small things like my contacts anymore - it was nice to have that buffer when we were just scraping by.

And being able to keep our deductible cost as cash and not at risk would definitely be what I want to do.

 

[nat8199]

Whether or not to invest your HSA is partly a matter of how much $$$ you have in the fund and how long you think it will last as you pay various medical expenses. Investments can go up as well as down and obviously the company running the HSA wants to make money from your investments. Just because markets are up significantly in the last year or two doesn't mean there also won't be down years in the future. Far too many think markets will always go up and tend to have short memories of how things have gone in the past. Any extended downturn in the markets may have people regretting they invested their HSA in the hopes of big returns while not needing the money.

Isn’t that the same for all retirement accounts? I don’t think I have ever heard of anyone regretting that they saved and invested for the future.

 

[_19disnA]

^^ The difference is HSA funds are used to pay your current medical bills if you are retired. Markets can take years to recover when there is a downturn. You can always put off going on vacation if your 401k takes a big hit in a market downturn. Medical expenses still need to be paid regardless of how the markets are performing.

 

[Disneefun]

That's why you change your asset allocation to more conservative investments as you get closer to retirement. If you're young, you invest your HSA for growth, just like in an IRA, etc. But as you age up, you move your assets to things like bonds to protect what you have. An HSA investment works just like a 401k or IRA. You can change your allocation to more conservative things so that when you need the money, it's there. But if you're young, or even 10+ years from retirement, you have time to let the growth of equities do its thing and weather the down markets.

 

[_19disnA]

I was commenting mostly to the OP's question. How much you have in your HSA, how long before you retire and/or need those funds makes a difference in how to answer the original question about investing. Investments can go up as well as down. Regardless of how you decide to invest your funds, there are no guarantees markets will always go up. The huge returns recently are NOT the norm and people easily forget how things went during the last few downturns.