What to invest HSA in?

[Farmer123]

I finally got my HSA rolled over from a local credit union to Fidelity, which means I can now invest it. I currently have about $6k.
Should I just invest it into FXIAX (S&P index fund)? Or are people less/more aggressive with their HSA?

Thank you in advance.

[nalor511]

Total market is fine. Careful if you're in CA or NJ, may want to stick to treasuries in those states because all gains and divs are taxable

[The_Big_H]

I weight my HSA more towards bonds figuring it could get used sooner.

This permits me to be even more stock heavy in other accounts.

[terran]

I consider it the same as the rest of my portfolio rather than anything special. Since it is kind of combo between Roth/traditional (tax free like Roth if used for medical expenses, taxed if not like traditional) I would put high growth (stock) investments in it before I would put them in traditional, but I would put low growth (bond) investments in it before I put them in Roth. Just depends on your desired asset allocation.

I would go with a total market index like FSKAX before an S&P 500 index like FXAIX. The Fidelity 0% expense ratio funds like FZROX would be a fine option too, although I don't like the fact that they don't follow an established index (designed to roughly follow a market without actually owning a proportional share of all the stocks in that market).

The Fidelity HSA also for some reason lets you invest in the institutional class of their index target date funds which are usually reserved large company plans and have a lower expense ratio than the consumer version, so that could be a good option if you want to go that route.

[ixtap]

Do you plan to use your HSA or let it grow while you pay medical expenses from other sources?

[EliteZags]

I weight my HSA more towards bonds figuring it could get used sooner.

This permits me to be even more stock heavy in other accounts.

sooo... you're giving up the tax free gains of the HSA, for more taxed gains in other accounts?

[surpasspro]

It depends if you are actually going to use it for medical expenses every year or just let it grow?  For myself I can cover any yearly medical expenses so my goal is to treat it like an retirements account.  I keep track of all my medical receipts, so if needed I can withdraw on it tax free.  It also depends on what your asset allocation is on any of your other accounts.  I keep it simple and just keep in an s&p 500 fund for long term growth.  If I were to use it for medical expenses every year, then I just keep it in a money market account.

[talltexan]

I've been trying to keep my HSA in asset classes that are not available in my 401K (such as small cap value and a domestic REIT). 2019 was a good year, with my investment returns exceeding my health expenditures.

[dizzy]

Total market is fine. Careful if you're in CA or NJ, may want to stick to treasuries in those states because all gains and divs are taxable

Wait, whaaaa?  I moved to NJ this year and did not realize this at all.

Does it make any difference where I'm located when I start to take disbursements?  Just stashing for now.

[facepalm]

Total market is fine. Careful if you're in CA or NJ, may want to stick to treasuries in those states because all gains and divs are taxable

I'm in CA and have my account with Optum. 100% in Vanguard Total Market. I don't have a treasury option, so I'm fine paying a little tax. Until I move, that is.

[terran]

Total market is fine. Careful if you're in CA or NJ, may want to stick to treasuries in those states because all gains and divs are taxable

Wait, whaaaa?  I moved to NJ this year and did not realize this at all.

Does it make any difference where I'm located when I start to take disbursements?  Just stashing for now.

I'm only basing this on what I've read, and may be conflating NJ and CA, so do your own research, but my understanding is that the HSA is basically ignored in those states, so it will act like a taxable account. If you relocate to a state that recognizes HSAs it will make a difference to the extent that any gains you realize at that point won't be taxed, but in the meantime any dividends (nothing you can do about that) or realized capital gains (not an issue if you don't sell except for capital gains distributions from a mutual fund) will be taxed. This only applies to state taxes, not federal taxes.

[MissPeach]

I would recommend holding anything you might use (a few thousand or your deductible amount) in something easy to get to. I invest anything over that amount in an index like a S&P or whatever I have available that's similar with a low cost basis. That way you can use it if you want to cover medical expenses without having to worry about taxes or marketing timing.

I'm in CA and the interest income on a few thousand dollars is usually $1 or under so I never technically get taxed on it. And since I haven't realized the market gains for the invested portion I don't owe taxes on it yet. That's the trick in CA or NJ is to try to keep the part you may use in cash essentially so you're not realizing gains on the invested portion.

[talltexan]

As a starting point for Californians, may I suggest that you have enough in cash such that--when added to the total of this calendar year's contribution--you get to your OOP maximum for insurance?

[HumanAfterAll]

I treat my HSA as a long-term investment, and plan to cover non-catastrophic medical expenses out of pocket, saving receipts for later reimbursement.

Because of the tax-free nature of the account, I put high-growth and highly taxable holdings in this account. For me that is 60% stocks (SPTM, SPSM, getting back into VNQ) and 40% gold (GLDM).

[reeshau]

Since the HSA is for medical spending, and medical costs are the category with the highest inflation rate for some time, I have my HSA weighted toward medical stocks.  That way, I look to meet or exceed the coat increases we have seen.

In fact, there are some very reasonably priced stocks in pharma / biotech for companies that aren't in the race foe the Covid-19 vaccine.

[talltexan]

I treat my HSA as a long-term investment, and plan to cover non-catastrophic medical expenses out of pocket, saving receipts for later reimbursement.

Because of the tax-free nature of the account, I put high-growth and highly taxable holdings in this account. For me that is 60% stocks (SPTM, SPSM, getting back into VNQ) and 40% gold (GLDM).

If it's a small expense, I'm just paying it. I'm keeping several large items ($2,000+) as receipts and will re-imburse myself for those when I'm ready to withdraw.