Author Topic: Help me invest my HSA please?  (Read 1855 times)

Parizade

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Help me invest my HSA please?
« on: March 05, 2019, 10:25:38 AM »
I can choose percentages from the following list:

American Funds Capital World †   
BlackRock Equity Dividend K   
Dodge & Cox Income   
Fidelity Low-Priced Stock
John Hancock Fundamental Large Cap Core   
Lord Abbett High Yield †   
Neuberger Berman Genesis Fund - INST   
Oppenheimer Developing Markets   
PIMCO GNMA and Government Securities Fund   
PIMCO Low Duration   
PIMCO Real Return Fund   
Schwab Target 2020 Index Fund I   
Schwab Target 2030 Index Fund I   
Schwab Target 2040 Index Fund I   
Schwab Target 2050 Index Fund I   
Schwab Target 2060 Index Fund I   
T. Rowe Price Blue Chip †   
Vanguard Equity-Income - A †   
Vanguard Extended Market †   
Vanguard Global Equity †   
Vanguard Healthcare †   
Vanguard Life Strategy-Growth †   
Vanguard LifeStrategy-Conservative Growth †   
Vanguard LifeStrategy-Moderate Growth †   
Vanguard Mid Cap Index - A †   
Vanguard REIT †   
Vanguard S&P 500 Index - A †   
Vanguard Small Cap Index - A †   
Vanguard Total Stock Market †   
Vanguard Treasury Money Market   
Vanguard Wellington - A †   
Victory Munder Mid Cap CLOSED: NO ELECTIONS   


RWD

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Re: Help me invest my HSA please?
« Reply #1 on: March 05, 2019, 10:39:22 AM »
Can you list the expense ratios?

From that list my personal preference would be the Vanguard Total Stock Market fund.

Parizade

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Re: Help me invest my HSA please?
« Reply #2 on: March 05, 2019, 10:46:56 AM »
What are expense ratios and how would I find them?

sisto

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Re: Help me invest my HSA please?
« Reply #3 on: March 05, 2019, 10:54:31 AM »
I agree with @RWD I would also consider: Vanguard S&P 500 Index - A †   

RWD

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Re: Help me invest my HSA please?
« Reply #4 on: March 05, 2019, 11:04:04 AM »
What are expense ratios and how would I find them?

Expense ratios are the percentage annual cut that the fund takes for operating expenses. They range from hundredths of a percent (e.g. Vanguard) to over one percent. So if you have $100k in a fund that has a 1% expense ratio it will cost you $1k a year (usually just reflected in the fund performance and not billed directly) while the same amount in a 0.05% fund would cost only $50 a year. Because this has a compounding effect and managed funds don't outperform passive funds anyway it is very desirable to seek out the lowest expense ratios as possible. Some funds also may charge one time fees (e.g. front load) that will reduce the efficiency of your investments. Depending on where you are investing you may also be charged an additional fixed or percentage fees by the financial institution on top of the fund's expense ratio.
https://www.bogleheads.org/wiki/Expense_ratios
https://www.investopedia.com/terms/e/expenseratio.asp

Where you can find them depends on the financial institution you are investing through. But usually they make it pretty easy to find on prospectuses or other lists. Worst case you can look them up by the fund ticker on an external site like Morningstar.

Parizade

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Re: Help me invest my HSA please?
« Reply #5 on: March 05, 2019, 11:52:17 AM »
Thank you RWD and Sisto. I found the expense ratios, Morningstar ratings, and past performance table here if that helps. Looks like none of them did very well last year.

https://www.optumbank.com/all-products/hsa/investment-services/fund-lineup.html

« Last Edit: March 05, 2019, 12:00:03 PM by Parizade »

RWD

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Re: Help me invest my HSA please?
« Reply #6 on: March 05, 2019, 12:11:35 PM »
Thank you RWD and Sisto. I found the expense ratios, Morningstar ratings, and past performance table here if that helps. Looks like none of them did very well last year.

https://www.optumbank.com/all-products/hsa/investment-services/fund-lineup.html

Note that past performance does not indicate future returns. The stock market as a whole didn't do great over the last year.

One interesting thing is that you have access to some Institutional funds at Vanguard (e.g. VITSX) which have slightly lower expense ratios. The table on that page only goes out to hundredths of a percent but VITSX actually has an expense ratio of 0.035%, which is slightly better than indicated in that table where they rounded it to 0.04%. VITSX is definitely my recommendation, as long as it works with the rest of your desired asset allocation in your investment policy statement.

Parizade

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Re: Help me invest my HSA please?
« Reply #7 on: March 05, 2019, 12:22:37 PM »
VITSX is definitely my recommendation, as long as it works with the rest of your desired asset allocation in your investment policy statement.

I need help figuring out what "the rest of your desired asset allocation in your investment policy statement" but I suspect that information is covered in other threads. Thank you for your help.

MDM

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Re: Help me invest my HSA please?
« Reply #8 on: March 05, 2019, 02:07:26 PM »
I need help figuring out what "the rest of your desired asset allocation in your investment policy statement" but I suspect that information is covered in other threads. Thank you for your help.
Read Getting started - Bogleheads, including the various links therein, and some things may become clearer. :) 

Others may become less clear. ;)

Come back with more questions after that reading - good luck!

seattlecyclone

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Re: Help me invest my HSA please?
« Reply #9 on: March 05, 2019, 02:24:32 PM »
What is your plan for this account? If you plan to pay your medical bills from other funds and let the HSA grow for a couple decades, I agree that the Vanguard total stock market fund is a fine choice. If you plan to pay for this year's medical expenses out of this account, you may want to have a large portion of it in a less volatile asset class such as a bond fund.

Parizade

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Re: Help me invest my HSA please?
« Reply #10 on: March 05, 2019, 03:12:37 PM »
What is your plan for this account? If you plan to pay your medical bills from other funds and let the HSA grow for a couple decades, I agree that the Vanguard total stock market fund is a fine choice. If you plan to pay for this year's medical expenses out of this account, you may want to have a large portion of it in a less volatile asset class such as a bond fund.

This money will sit and grow, I'm not anticipating any big medical bills in the near future. I'm keeping $2000 in cash just in case something comes up but the rest will be in the Vanguard accounts.

Parizade

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Re: Help me invest my HSA please?
« Reply #11 on: March 05, 2019, 04:21:00 PM »
Read Getting started - Bogleheads, including the various links therein, and some things may become clearer. :) 

Others may become less clear. ;)

Come back with more questions after that reading - good luck!

Thank you MDM. My investments have mostly been through work and have been somewhat on auto-pilot with a date targeted 401k fund and a date targeted rollover IRA as well. I also have a chunk of stock from employee stock options. I'm planning to FIRE this summer and I'm wondering if I should change things up a bit and manage my money more actively. I will be able to live quite comfortably on my social security so my investments can just stay invested and once I FIRE I'll have plenty of time to play around with money and make the most of it.

I'm also accumulating too much cash in my everyday checking and savings accounts, I feel I should get that working for me instead of letting it just sit around.

Thoughts?

MDM

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Re: Help me invest my HSA please?
« Reply #12 on: March 05, 2019, 06:54:10 PM »
Read Getting started - Bogleheads, including the various links therein, and some things may become clearer. :) 

Others may become less clear. ;)

Come back with more questions after that reading - good luck!

Thank you MDM. My investments have mostly been through work and have been somewhat on auto-pilot with a date targeted 401k fund and a date targeted rollover IRA as well. I also have a chunk of stock from employee stock options. I'm planning to FIRE this summer and I'm wondering if I should change things up a bit and manage my money more actively. I will be able to live quite comfortably on my social security so my investments can just stay invested and once I FIRE I'll have plenty of time to play around with money and make the most of it.

I'm also accumulating too much cash in my everyday checking and savings accounts, I feel I should get that working for me instead of letting it just sit around.

Thoughts?
Target date funds in which (e.g., Vanguard's) the expense ratio is ~the same as the weighted average of the underlying fees are fine choices.

In addition to the Bogleheads wiki article, see Investment Order for some general thoughts, but that is mostly aimed at people still contributing.

For someone in retirement, choices of
- when to start SS, and
- how much to convert from traditional to Roth each year
might be more relevant.  How are you doing on those?

Parizade

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Re: Help me invest my HSA please?
« Reply #13 on: March 06, 2019, 05:59:22 AM »
Quote
In addition to the Bogleheads wiki article, see Investment Order for some general thoughts, but that is mostly aimed at people still contributing.
WHAT           
0. Establish an emergency fund to your satisfaction  DONE (though it’s in cash in my checking account which probably deserves a facepunch)         
1. Contribute to your 401k up to any company match DONE (though contributions will stop when I FIRE in June)
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield. DONE – my only debt is my mortgage which I could pay off with my emergency fund if I chose
3. Max Health Savings Account (HSA) if eligible. DONE (and now invested)
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level My only IRA is a rollover, so I probably deserve another facepunch here.   
5. Max 401k (if
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - your earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5)            I didn’t sort out the if/then statements (facepunch?) but did max my 401k with the Target Date fund
6. Fund a mega backdoor Roth if applicable.   I don’t even know what this is   
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.   See #2 above
8. Invest in a taxable account and/or fund a 529 with any extra. Not sure what this is either[

Quote
For someone in retirement, choices of
- when to start SS, and
- how much to convert from traditional to Roth each year
might be more relevant.  How are you doing on those?

I plan to start SS in June (62). My COL is so low now I can live comfortable on SS and leave my investments alone but should I

I understand I will have to start withdrawing when I turn 70 but in the meantime I can move my money around to make the most of it right?

MDM

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Re: Help me invest my HSA please?
« Reply #14 on: March 06, 2019, 11:42:44 AM »
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level My only IRA is a rollover, so I probably deserve another facepunch here.   
Whether traditional or Roth would be better depends on your current income and expected retirement income, but one or the other is usually better than leaving money in a taxable account.

Quote
6. Fund a mega backdoor Roth if applicable.   I don’t even know what this is
May or may not be available at your workplace.  See the link in the I.O. post.

Quote
8. Invest in a taxable account and/or fund a 529 with any extra. Not sure what this is either
A 529 is primarily for college expenses, so probably not applicable.  A taxable account is simply an account with Fidelity, Schwab, Vanguard, etc., that is not an IRA, 401k, etc.

Quote
I plan to start SS in June (62). My COL is so low now I can live comfortable on SS and leave my investments alone but should I
An oft-debated question.  E.g., see Delay Social Security to age 70 and Spend more money at 62 - Bogleheads.org for various perspectives.

Quote
I understand I will have to start withdrawing when I turn 70 but in the meantime I can move my money around to make the most of it right?
Yes.  Converting a portion of traditional accounts to Roth each year might be useful.  Depends on the traditional balance and any "unavoidable" (e.g., pension) income.

Parizade

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Re: Help me invest my HSA please?
« Reply #15 on: March 06, 2019, 11:59:18 AM »
Yes.  Converting a portion of traditional accounts to Roth each year might be useful.  Depends on the traditional balance and any "unavoidable" (e.g., pension) income.

I don't undersstand, how would converting my traditional accounts to Roth be useful? Or are you talking about when I have to start withdrawing?

MDM

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Re: Help me invest my HSA please?
« Reply #16 on: March 06, 2019, 12:14:40 PM »
Yes.  Converting a portion of traditional accounts to Roth each year might be useful.  Depends on the traditional balance and any "unavoidable" (e.g., pension) income.

I don't undersstand, how would converting my traditional accounts to Roth be useful? Or are you talking about when I have to start withdrawing?
If you can convert smaller amounts over several years, that may leave you with more after tax than when you are forced (i.e., Required Minimum Distributions) to withdraw larger amounts.

What do you expect your marginal tax rate on voluntary withdrawals will be after retirement and
a) before starting SS
b) after starting SS and before RMDs
c) after RMDs begin?

radram

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Re: Help me invest my HSA please?
« Reply #17 on: March 06, 2019, 12:55:12 PM »
Yes.  Converting a portion of traditional accounts to Roth each year might be useful.  Depends on the traditional balance and any "unavoidable" (e.g., pension) income.

I don't undersstand, how would converting my traditional accounts to Roth be useful? Or are you talking about when I have to start withdrawing?

You are asking some FANTASTIC questions.

Conversion to a Roth can be useful for a couple of great reasons.

1.Roths never require required minimum distributions. A traditional IRA does. For many, they might not WANT to take out money starting at age 70.5, but are forced to if it is in an IRA.

2. Roth distributions do not count as income and are not taxed when distributed.

3. The amount you contribute to a Roth can be withdrawn anytime prior to 59 1/2 without penalty.  Your posts suggest you are older than that, so this probably does not matter to you. In the case of a conversion, you must wait 5 years if you are younger than 59 1/2.

Based on your statement that your SS will be enough to live on, you might want to investigate converting so you can take it out when you WANT to instead of when you HAVE to. There can be some very advantageous ways to convert those funds to minimize taxes. If you are far from entering the next tax bracket, you can convert an amount that will "use up" the rest of that bracket.

Delaying SS could give you a couple of advantages:
1. Checks will be higher once you do start collecting.
2. Instead of having income in the form of SS, you could convert the same amount to a Roth, decreasing your stache subject to RMD's.

This would reduce RMD's, allow more conversions at a lower tax bracket, and raise your SS payments forever.

Everyone's numbers are different of course. YMMV.

@MDM gave 3 stages in your life in the post right before this one. Delaying SS might make stage "a" larger, which could cause a reduction in taxes for stage "c"

Keep us posted.

Parizade

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Re: Help me invest my HSA please?
« Reply #18 on: March 06, 2019, 03:28:58 PM »
What do you expect your marginal tax rate on voluntary withdrawals will be after retirement and
a) before starting SS
b) after starting SS and before RMDs
c) after RMDs begin?

How would I figure this out? And thank you for taking the time to walk me through some of this.

One of my concerns with Social Security is that it's due to run out in 15 years, after which my payments would likely be cut back to 77%
[Social Security is still expected to run out of money in 2034]

In which case I want to start collecting now and get as much as I can from them and wait until they start cutting back to use my savings.

Parizade

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Re: Help me invest my HSA please?
« Reply #19 on: March 06, 2019, 03:34:26 PM »

You are asking some FANTASTIC questions.

Thank you radram!

I would definitely be interested in strategies to lower taxes (my state does tax SS) but have some concerns about postponing social security (see my response to MDM above)

I'm also definitely interested in avoiding the forced withdrawals if I can.

MDM

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Re: Help me invest my HSA please?
« Reply #20 on: March 06, 2019, 03:46:20 PM »
What do you expect your marginal tax rate on voluntary withdrawals will be after retirement and
a) before starting SS
b) after starting SS and before RMDs
c) after RMDs begin?

How would I figure this out? And thank you for taking the time to walk me through some of this.
Happy to help anyone willing to do some of the work.  Might take a few iterations, but I'm willing if you are.

For all of these, you can use the case study spreadsheet if you have Excel.  In particular, the chart near cell Calculations!G107.  Change that cell from B11 to D31, then click the Update Chart button near cell L114.  Change cell P83 until the x-axis on the chart covers the range of tIRA withdrawals you might consider.  E.g., use 200 in P83 if you want to look at $0-$100K/yr.  Adjust the y-axis scale as desired.

For "a", enter what you expect for non-tIRA-withdrawals in cells B3:D41.  E.g., if you expect $500/yr in qualified dividends and $100/yr in interest, put 500 in cell D25 and 100 in cell D23.  A pension goes in B32.

For "b" add SS in B38.

For "c" put your RMD in cell P84.

So far so good, or do we need to back up?
 

Quote
One of my concerns with Social Security is that it's due to run out in 15 years, after which my payments would likely be cut back to 77%
[Social Security is still expected to run out of money in 2034]

In which case I want to start collecting now and get as much as I can from them and wait until they start cutting back to use my savings.
That's a defensible approach.  My guess is that congress knows that seniors vote and will not cut SS, but that's just my guess.

MustacheAndaHalf

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Re: Help me invest my HSA please?
« Reply #21 on: March 07, 2019, 07:25:56 AM »
Do you have about 40 years until retirement?

I'd go with "Schwab Target 2060 Index Fund I" with it's 0.08% expense ratio.  Within that one fund are U.S. stocks, international stocks, and bonds.  All passive index funds, which have a big advantage over active funds.

There's a lot of bad options on that list, including American Funds Capital World Growth and Income Fund Class A (CWGIX).  That fund might charge a 5.75% load (which is money you simply lose) and 0.75% per year.

This plan even managed to pick an actively managed Vanguard fund, while not including any international Vanguard funds (like VXUS, Vanguard Total International).  So I'd go with a target date fund that charges just 0.08% / year in expenses.

Parizade

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Re: Help me invest my HSA please?
« Reply #22 on: March 08, 2019, 06:36:03 AM »

For "a", enter what you expect for non-tIRA-withdrawals in cells B3:D41.  E.g., if you expect $500/yr in qualified dividends and $100/yr in interest, put 500 in cell D25 and 100 in cell D23.  A pension goes in B32.

For "b" add SS in B38.

For "c" put your RMD in cell P84.

So far so good, or do we need to back up?

I haven't walked away, I will be doing taxes and working on these calculations over the weekend. We have another massive blizzard coming so I won't have any distractions luring me out of the house.