Author Topic: HSA advice please!  (Read 1001 times)

BlkSC

  • 5 O'Clock Shadow
  • *
  • Posts: 5
HSA advice please!
« on: February 25, 2021, 01:18:53 AM »
My company recently moved from HSA Bank to Bank of America HSA and I'm hoping to get some advice. They do offer some Vanguard options but VTSAX isn't on the list.

My gut tells me ISHARES S&P 500 Index Fund with a 0.03% expense ratio might be a good substitute but I'd like to know what you all think. Thanks all!

This is my list of options:


AMERICAN CAP WRLD GR & INCF2   WGIFX
AMERICAN INTL GRW AND INCM R6   RIGGX
BLACKROOT EQUITY DIVIDEND CL K   MKDVX
BLACKROOT HIGH YIELD BOND      BRHYX
CARILLON SCOUT MID CAP FUND R6   CSMUX
CLEARBRIDGE SMALL CAP GROW IS   LMOIX
CLEARBRIDGE APPRECIATION IS      LMESX
COHEN STEERS GLOBAL REALTY Z   CSFZX
COLUMBIA MID CAP INDEX INST    NMPAX
COLUMBIA SMALL CAP INDEX INST    NMSCX
HARTFORD SCHRODERS EMG MKTS EQ   SEMTX
ISHARES MSCI TOTAL INTL IDX K      BDOKX
ISHARES S&P 500 INDEX CL K      WFSPX
ISHARES US AGG BOND INDEX CL K   WFBIX
MAINSTAY LARGE CAP GROWTH CL I    MLAIX
PIMCO COMMODITY REAL RET STR    IPCRIX
PIMCO LOW DURATION FUND CL I    PTLDX
PIMCO TOTAL RETURN FUND CL I    PTTRX
VANGUARD FTSE SOCIAL INDEX ADM   VAIPX
VANGUARD INFLTN-PROTD SECS ADM    VAIPX
VANGUARD LIFESTRTGY MOD GR INV   VASGX
VANGUARD LIFESTRT CNSRV GR INV   VSCGX
VANGUARD LIFESTRTGY MOD GR INV   VSMGX
VANGUARD TARGET RET 2015 INV    VTXVX
VANGUARD TARGET RET 2020 INV    VTWNX
VANGUARD TARGET RET 2025 INV    VTTVX
VANGUARD TARGET RET 2030 INV    VTHRX
VANGUARD TARGET RET 2035 INV    VTTHX
VANGUARD TARGET RET 2040 INV    VFORX
VANGUARD TARGET RET 2045 INV    VTIVX
VANGUARD TARGET RET 2050 INV    VFIFX
VANGUARD TARGET RET 2055 INV    VFFVX
VANGUARD TARGET RET 2060 INV    VTTSX
VANGUARD TARGET RET 2065 INV   VLXVX
VANGUARD TGT RETIREMNT INC INV    VTINX
VAN TOTAL WORLD STOCK IDX ADM    VTWAX
VOYA SMALL COMPANY R6              VYSEX

nereo

  • Senior Mustachian
  • ********
  • Posts: 14361
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: HSA advice please!
« Reply #1 on: February 25, 2021, 07:15:15 AM »
this is really a personal question that can't be answered without knowing a lot more about you, your investing strategy, your timeline(s), etc.
What does your Investor Policy Statemnet say?  Do you have one>

Very broad strokes, but I'd select whatever investments you'd normally invest in, with the caveat that if your plans include holding bonds, your HSA is an excellent place to hold them (for tax purposes). 

You did not list expense ratios, but if it's below 0.1% that's pretty good - anything below 0.05% is excellent (And don't worry too much about the differences of 0.01% between funds).

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3679
Re: HSA advice please!
« Reply #2 on: February 25, 2021, 08:49:23 AM »
My gut tells me ISHARES S&P 500 Index Fund with a 0.03% expense ratio might be a good substitute but I'd like to know what you all think. Thanks all!
In general the lowest expense ratio is a good idea for several reasons.  First, it's the easiest way to find an index fund among active funds, which can't compete with index funds on expense ratio (or performance, typically).  It's also a way to keep more of your investment dollars, since less gets used up over time to pay the fund.

Personally, I'm okay with a 50/50 split of U.S. and international.  If you wanted a lower amount, like 20%, then that's half of a 40% allocation to VTWAX (Vanguard Total World).  So you could get international diversification as well.
https://investor.vanguard.com/mutual-funds/profile/VTWAX

chuckster

  • 5 O'Clock Shadow
  • *
  • Posts: 95
Re: HSA advice please!
« Reply #3 on: February 25, 2021, 06:16:04 PM »
Since, generally, an HSA is triple-tax-advantaged, if you already have a ROTH and a 401k, I'd put my most high-risk, high-reward investments in the HSA. Then, the next tier I'd put in a Roth (medium-to-high risk, dividends, long shots, etc), and my most basic investments (bonds, TIPS, boring index funds, etc) in the 401k.

Unless you live in California or New Jersey, in which case your HSA transactions are taxable and require an adjustment to strategy... you don't want to be jumping in and out of speculative investments and triggering capital gains taxes every time, which may require you to take money out of the HSA just to pay the income taxes on it. Even dealing with dividends might suck.

« Last Edit: February 25, 2021, 06:18:34 PM by chuckster »

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: HSA advice please!
« Reply #4 on: February 25, 2021, 09:55:40 PM »
Lots of good choices there. Anything with "index" and "Vanguard" is promising. I had those Columbia funds in my HSA, they follow good indices S&P400 and S&P600 but the expense ratios are probably still high. Really it depends on your goals and situation. VTWAX, total bond, total international, VASGX, VTINX, all you need in an HSA really.

BlkSC

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: HSA advice please!
« Reply #5 on: February 26, 2021, 01:24:21 AM »
I live in Kansas so none of that California or New Jersey nonsense.

I fully fund my 401k at work, 50% traditional and 50% Roth, and I fund my Roth IRA as much as possible (which isn't much so far because of the income limit).

I completely agree with nereo.  If you can get yield in an HSA it's wonderful for tax purposes and you need to understand how it fits into your portfolio.  I looked up some of these funds (I use TD Ameritrade) and you can generally find out if they are trash are not in a few minutes.  WFSPX was one of the better ones but I didn't look at them all.  I also have found that basing my decisions purely on fees is not always my best option.  Buffett is right in general mutual funds can't out perform the benchmark with fees but the best ones still might be better for your portfolio.   I look at the 1, 3, and 5 year performances of the fund and if the mutual fund has beat the benchmark with the fee included (and similar risk) then I have done well to invest in the mutual fund.

So that's kinda how I've picked funds for my 401k, looked at 1, 3, and 5 year performance of all the choices in each category, large cap, small cap, etc., and just picked the best out of each category....but I've never really known for sure if that's the right thing to do.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5832
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: HSA advice please!
« Reply #6 on: February 28, 2021, 11:29:09 AM »
So that's kinda how I've picked funds for my 401k, looked at 1, 3, and 5 year performance of all the choices in each category, large cap, small cap, etc., and just picked the best out of each category....but I've never really known for sure if that's the right thing to do.

Eh...not really.



Different asset classes behave differently, and in cycles. These one-year, three-year, five-year returns place a lot of weight on what happened last year. This is essentially random. If you looked at one-year returns in early 2015, you'd own a lot of REITs because that's what did best in 2014. If you looked at one-year returns in early 2018, you'd own a lot of international stocks (particularly from emerging markets) because that's what did best in 2017.

The top-performing asset class in this group changes every year! If you look every year and reallocate your holdings to whatever did best the previous year, you could be in for a bad time. Real estate gained 15% in 2014 but lost 1% in 2015. Small-cap equity went up 21% in 2016, but lost 11% in 2018.  Emerging markets gained 37% in 2017, but lost 15% in 2018.

The recommended practice is instead to pick a mix of asset classes based on your risk tolerance (more stocks, less bonds if you're braver, more bonds, less stock if you're more fearful). Ignore the recent past when deciding on this allocation. Stick with it as markets go up and down.

nereo

  • Senior Mustachian
  • ********
  • Posts: 14361
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: HSA advice please!
« Reply #7 on: February 28, 2021, 12:15:49 PM »
I love that graphic, and was waiting for someone to post it.  Thanks @seattlecyclone

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5832
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: HSA advice please!
« Reply #8 on: February 28, 2021, 09:26:13 PM »
@seattlecyclone  I understand the principle but you also have to understand the options in company sponsored 401k's are limited.  You can't just invest in real estate or particular asset classes.  You have 10-15 options and many are managed.  So what I do is determine the allocation I want between large/medium/small cap and international.  Then compare the funds that will get you to that allocation.  For funds you look at performance (1 ,3, and 5), what the investment is interested in, and their risk portfolio.  This is especially useful for managed find but also useful for etfs.  I also don't buy in that we should always invest on broad diversification.  In general it's good but then you could miss secular trends.  For example tech/large cap have dominated other assets in the last few years and I believe that is secular not cyclical.

Whether you're comparing different asset class indexes together, or comparing different funds within the same asset class, the principle is the same. Those recent performance numbers will tell you which fund did better last year, but they have little correlation with how well you should expect the fund to do this year or the next.

If you want to place a bet on a particular company or industry outperforming over the next period of years, that's a valid thing to do. Do it because you really believe in that industry, not because the large-cap fund in your 401(k) that owns a bit more of companies from that industry did better last year than the other large-cap funds in your 401(k). A fund that owns the index plus a double portion of Tesla would have done quite well last year, but would underperform in 2021 YTD.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5832
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: HSA advice please!
« Reply #9 on: March 01, 2021, 02:58:53 PM »
Essentially zero humans are able to beat the market consistently. Plenty of research has been done on this. If your actively-managed fund outperformed the market last year, it was almost certainly luck rather than skill. Even if it was skill, you have no way of knowing this with confidence until the manager has achieved many years of outperformance. Even 3-5 years of outperformance is still probably just luck.

If your 401(k) is stuck in the 20th century with no index options in any asset class, then I guess you might as well go with the one that got lucky last year. Right after you pick a fund you should also encourage your company's management to get with the times and put index funds in their lineup.

nereo

  • Senior Mustachian
  • ********
  • Posts: 14361
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: HSA advice please!
« Reply #10 on: March 01, 2021, 07:20:09 PM »
@seattlecyclone I believe you are missing the importance of the "human element" and the management structure for managed funds.  For a proper portfolio you have to diversify (large, small, mid, bonds, etc.)  Then you need to compare your investment options in those groupings.  All mutual funds are not created equal and some of them are terrible and some of them are winners (for a mutual fund.)  The "midcap" winners outperform the bad ones in almost all market conditions because of the human element in these funds.  Its like everything else unless the management has changed its best to bet on the best in bread because they will adjust their funds to continue to perform well.  For instance in my 401k I have a choice of 2 large cap funds.  One has gotten 70% returns the other has gotten 44% over the last 5 years.  Based on your theory each year I should split my capital between them but I have outperformed because I have used the performances, fees, looked at their investments, and their risks.  Remember this is not allocation question I'm still diversifying but a tool to help choose which "large cap" fund to choose.  Remember this is about investing in a 401k's that many times have "crappy" investment options.  It's a completely different ballgame if your options aren't limited.

What data do you have which shows you can successfully pick funds which will outperform their benchmark going forward?

Thereís a great deal of evidence which shows that future performance is not correlated with past performance. So how do you go about it?

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: HSA advice please!
« Reply #11 on: March 01, 2021, 10:45:44 PM »
@seattlecyclone I believe you are missing the importance of the "human element" and the management structure for managed funds.  For a proper portfolio you have to diversify (large, small, mid, bonds, etc.)  Then you need to compare your investment options in those groupings.  All mutual funds are not created equal and some of them are terrible and some of them are winners (for a mutual fund.)  The "midcap" winners outperform the bad ones in almost all market conditions because of the human element in these funds.  Its like everything else unless the management has changed its best to bet on the best in bread because they will adjust their funds to continue to perform well.  For instance in my 401k I have a choice of 2 large cap funds.  One has gotten 70% returns the other has gotten 44% over the last 5 years.  Based on your theory each year I should split my capital between them but I have outperformed because I have used the performances, fees, looked at their investments, and their risks.  Remember this is not allocation question I'm still diversifying but a tool to help choose which "large cap" fund to choose.  Remember this is about investing in a 401k's that many times have "crappy" investment options.  It's a completely different ballgame if your options aren't limited.
I agree with you on this "For a proper portfolio you have to diversify (large, small, mid, bonds, etc.)" but you are wrong on selecting winners. There is in fact evidence that the worst actively managed mutual funds continue to do bad, but these are quickly swept under the rug. The result is that you will only ever see above average mutual funds, even though 75% of them underperform over the long run. After 20 years, by far the most predictive factor in mutual fund success is expense, where more expensive funds almost universally do worse. So I would advise you to look for the least expensive funds in each category. Certainly under 0.5%.

Side note, there is actually something called momentum, which means that the best performing assets are likely to do well in the short-medium term. The problem is that on the 5-15 year time frame there is something called mean reversion, which means that the worst assets become the best and vice versa.

Great resource: https://www.spglobal.com/spdji/en/spiva/#/reports

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3679
Re: HSA advice please!
« Reply #12 on: March 02, 2021, 09:35:34 AM »
The "midcap" winners outperform the bad ones in almost all market conditions because of the human element in these funds.
That's false.  SPIVA tracks mid-cap funds against a benchmark.  Over the past 15 years, 81.4% of mid-cap funds underperformed their benchmark.
https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 3679
Re: HSA advice please!
« Reply #13 on: March 05, 2021, 10:52:48 PM »
Sorry I should have clarified I was comparing good managed funds to poor managed funds (The debate was on limited options in 401k's and HSA's)
You're claiming to know which "good managed funds" beat "poor managed funds".  According to the Securities and Exchange Commission (SEC.gov), past performance does not necessarily indicate future performance.  Do you have evidence for your claim?
https://www.sec.gov/answers/mperf.htm

Picking the lowest expense ratio gives an immediate advantage, allowing you to keep more of your money each year.  The lowest expense ratio in a 401(k) or HSA is very likely a passive index fund, which has a big advantage over active funds, beating them 80%+ of the time - the longer the time frame, the more often passive indexing wins.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1777
  • One Does Not Simply Work Into Mordor
Re: HSA advice please!
« Reply #14 on: March 06, 2021, 09:32:01 AM »
Please see enclosed.  The best managers over a long time frame can outperform poor ones. (In this study 94% of the best funds even beat their benchmark over 7 years.). Based on your thesis all funds managers would revert to the same performance over the long haul and there world be no best and worst performances.  I'm not talking about ETFs at all here.
All fund managers DO revert to the same performance over the long haul. That is the entire point. Your paper is not even close to an objectively disinterested source.

On the topic of expenses and how they affect performance, here is an interesting comparison made by a poster at bogleheads:
https://bogleheads.org/forum/viewtopic.php?f=10&t=341942


nereo

  • Senior Mustachian
  • ********
  • Posts: 14361
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: HSA advice please!
« Reply #15 on: March 06, 2021, 05:33:48 PM »
What happened to the OPís responses?
I thought we might actually get somewhere with this discussion...