Author Topic: What to invest in for HSA  (Read 830 times)

Lski'stash

  • Pencil Stache
  • ****
  • Posts: 525
  • Age: 34
  • Location: West Michigan
    • A Teacher's Journey to FI in the Mitten State
What to invest in for HSA
« on: January 27, 2021, 06:37:29 PM »
Hello mustachians!

It's been a minute since I've been on here, and I'm glad to see the community is alive and well.

I now have access to an HSA, and I am wondering what investment option I should go with.

Here are my choices-

Growth Index I VIGIX Large Growth HHHH 0.04
Institutional Index Instl P1 VIIIX Large Growth HHHHH 0.02
Value Idx Adm VVIAX Large Blend HHHH 0.05
Extended Market Idx InstlPlus VEMPX Mid-Cap Value HHHH 0.04
Mid-Cap Value Idx Adm VMVAX Mid-Cap Blend HHHH 0.07
Small Cap Index Adm VSMAX Small Blend HHHHH 0.05
Small Cap Value Idx Adm VSIAX Small Blend HHHH 0.07
Total Intl Stock Indx InstlPls VTPSX Foreign Large Blend HHHH 0.07
Emerging Markets Stock Idx I VEMIX Diversified Emerging Mkts HHH 0.10
Other
REIT Index I VGSNX Real Estate HHH 0.10
Materials Index Adm VMIAX Natural Resources HHHH 0.10
Wellesley® Income Admiral™ VWIAX Balanced Allocation HHHHH 0.16
Target Date Funds
Target Retirement 2020 Inv VTWNX Target Date 2016-2020 HHHH 0.13
Target Retirement 2030 Inv VTHRX Target Date 2026-2030 HHHH 0.14
Target Retirement 2040 Inv VFORX Target Date 2036-2040 HHHH 0.14
Target Retirement 2050 Inv VFIFX Target Date 2046-2050 HHHH 0.15
Target Retirement 2060 Inv VTTSX Target Date 2051- HHH 0.15
Retirement Income Inv VTINX Retirement Income HHHH 0.12

They are all Vanguard Mutual Funds with pretty low rates- Should I just go with the one with the lowest rate, or is there more to the strategy for an HSA?

Thank you so much!

ixtap

  • Magnum Stache
  • ******
  • Posts: 3047
Re: What to invest in for HSA
« Reply #1 on: January 27, 2021, 06:41:29 PM »
Are you in a state that taxes HSAs like brokerage accounts?

Lski'stash

  • Pencil Stache
  • ****
  • Posts: 525
  • Age: 34
  • Location: West Michigan
    • A Teacher's Journey to FI in the Mitten State
Re: What to invest in for HSA
« Reply #2 on: January 27, 2021, 06:45:21 PM »
Are you in a state that taxes HSAs like brokerage accounts?

I don't think so? I'm in Michigan.

ctuser1

  • Handlebar Stache
  • *****
  • Posts: 1741
Re: What to invest in for HSA
« Reply #3 on: January 27, 2021, 08:15:58 PM »
Assumption: You are using the HSA for long term growth and don't plan to use it for ongoing medical expenses.

What is your asset allocation in stocks vs other asset classes?

IF you are a 100% stocks kind of a guy (at age 33 I would be), then I would stock up on the most aggressive positions with highest long term returns in HSA and Roth. You will pay no taxes on that growth, so you want to maximize growth in HSA/Roth while push the lower expected return stuff in your 401k. e.g. from the list given below I would pick VIGIX for HSA simply because it is growth oriented.

I would not put bond equivalents/REIT's etc in your HSA or Roth.

The above is just my opinion. I have heard people argue for including the bond portion of the portfolio in tax free accounts. I think it is best to have a more aggressive posture @33. If you lose it all in HSA, you can easily start over, and if you gain a bunch then it is all tax free.

 

Abe Froman

  • Stubble
  • **
  • Posts: 140
  • Location: Greater Chicago
Re: What to invest in for HSA
« Reply #4 on: January 28, 2021, 09:05:51 AM »
My HSA is relatively small (very small) portion of my portfolio, and with it being the most tax advantaged vehicle ever - I am going to put as much as I can in and then let is sit as long as I can.

Mad Fientist has a great summary https://www.madfientist.com/ultimate-retirement-account/.

As for what to put it in - I did some digging for best long term returns (best average over >20 years), and those are easily small cap value. From 1928 through 2016, the S&P 500 index compounded at 9.7%, while small-cap value stocks grew at 13.5%.

So for me -  I did a 70% split of Vanguard's Small Cap Value Index and the balance put into a 2040 Target Fund.

I plan to pay for med expenses out of pocket - save bills, and pay for them later while their costs are fixed and my account grows.




Radagast

  • Handlebar Stache
  • *****
  • Posts: 1805
  • One Does Not Simply Work Into Mordor
Re: What to invest in for HSA
« Reply #5 on: January 28, 2021, 09:31:00 AM »
It depends on your objective. If you are thinking you will use this for healthcare expenses then leaving it as cash may be best. If you are thinking you may use this for healthcare expenses or otherwise want it conservatively invested then VTINX is a great choice, well diversified and mostly bonds. If you want to invest it, and the rest of your 401k et al is in S&P500 and US Total Market funds, then the international fund is a good choice. If you are following a broader asset allocation, then invest according to that.

FYI you can port the HSA to anywhere, so you don't need to limit yourself to those funds. Fidelity is probably the best choice if you choose to do this. I have not moved my HSA because it is too much work, and I invest mine in Vanguard Midcap Index.

HBFIRE

  • Handlebar Stache
  • *****
  • Posts: 1304
  • Age: 42
  • Location: Huntington Beach, CA
Re: What to invest in for HSA
« Reply #6 on: January 28, 2021, 07:59:50 PM »
Fidelity has an HSA with no management fees and I invest in their 0 expense ratio index funds (FZROX and FZILX).  Zero cost is nice.

talltexan

  • Magnum Stache
  • ******
  • Posts: 4400
Re: What to invest in for HSA
« Reply #7 on: January 29, 2021, 07:32:56 AM »
My HSA is relatively small (very small) portion of my portfolio, and with it being the most tax advantaged vehicle ever - I am going to put as much as I can in and then let is sit as long as I can.

Mad Fientist has a great summary https://www.madfientist.com/ultimate-retirement-account/.

As for what to put it in - I did some digging for best long term returns (best average over >20 years), and those are easily small cap value. From 1928 through 2016, the S&P 500 index compounded at 9.7%, while small-cap value stocks grew at 13.5%.

So for me -  I did a 70% split of Vanguard's Small Cap Value Index and the balance put into a 2040 Target Fund.

I plan to pay for med expenses out of pocket - save bills, and pay for them later while their costs are fixed and my account grows.

This is excellent. Did you rule out international for any particular reason?

Lski'stash

  • Pencil Stache
  • ****
  • Posts: 525
  • Age: 34
  • Location: West Michigan
    • A Teacher's Journey to FI in the Mitten State
Re: What to invest in for HSA
« Reply #8 on: March 14, 2021, 06:39:20 AM »
Assumption: You are using the HSA for long term growth and don't plan to use it for ongoing medical expenses.

What is your asset allocation in stocks vs other asset classes?

IF you are a 100% stocks kind of a guy (at age 33 I would be), then I would stock up on the most aggressive positions with highest long term returns in HSA and Roth. You will pay no taxes on that growth, so you want to maximize growth in HSA/Roth while push the lower expected return stuff in your 401k. e.g. from the list given below I would pick VIGIX for HSA simply because it is growth oriented.

I would not put bond equivalents/REIT's etc in your HSA or Roth.

The above is just my opinion. I have heard people argue for including the bond portion of the portfolio in tax free accounts. I think it is best to have a more aggressive posture @33. If you lose it all in HSA, you can easily start over, and if you gain a bunch then it is all tax free.

Yes, 100% stocks is the plan for the HSA.  I'm 90/10 spread out over my 457 and 403b.

Lski'stash

  • Pencil Stache
  • ****
  • Posts: 525
  • Age: 34
  • Location: West Michigan
    • A Teacher's Journey to FI in the Mitten State
Re: What to invest in for HSA
« Reply #9 on: March 14, 2021, 06:43:24 AM »
It depends on your objective. If you are thinking you will use this for healthcare expenses then leaving it as cash may be best. If you are thinking you may use this for healthcare expenses or otherwise want it conservatively invested then VTINX is a great choice, well diversified and mostly bonds. If you want to invest it, and the rest of your 401k et al is in S&P500 and US Total Market funds, then the international fund is a good choice. If you are following a broader asset allocation, then invest according to that.

FYI you can port the HSA to anywhere, so you don't need to limit yourself to those funds. Fidelity is probably the best choice if you choose to do this. I have not moved my HSA because it is too much work, and I invest mine in Vanguard Midcap Index.

I don't think we will use the extra funds in the account, but I can't be 100% so VTINX might be a good choice. I have a deductible to meet (2800), so my thinking was to max it out, and leave the deductible as cash, with the rest in stocks of some sort.

Lski'stash

  • Pencil Stache
  • ****
  • Posts: 525
  • Age: 34
  • Location: West Michigan
    • A Teacher's Journey to FI in the Mitten State
Re: What to invest in for HSA
« Reply #10 on: March 14, 2021, 06:49:42 AM »
My HSA is relatively small (very small) portion of my portfolio, and with it being the most tax advantaged vehicle ever - I am going to put as much as I can in and then let is sit as long as I can.

Mad Fientist has a great summary https://www.madfientist.com/ultimate-retirement-account/.

As for what to put it in - I did some digging for best long term returns (best average over >20 years), and those are easily small cap value. From 1928 through 2016, the S&P 500 index compounded at 9.7%, while small-cap value stocks grew at 13.5%.

So for me -  I did a 70% split of Vanguard's Small Cap Value Index and the balance put into a 2040 Target Fund.

I plan to pay for med expenses out of pocket - save bills, and pay for them later while their costs are fixed and my account grows.

I've read the mad Fientist article and understand the 'triple' tax advantage, but I still think we will probably use it up to our deductible (2800). We can put in 7600 though, and my school system pays 50 per month into it, so I think it's still going to build plenty. Good information for the small cap value stocks. Would a mix of the small cap and the VTINX be a good option?

bacchi

  • Walrus Stache
  • *******
  • Posts: 5688
Re: What to invest in for HSA
« Reply #11 on: March 14, 2021, 09:03:32 AM »
I've read the mad Fientist article and understand the 'triple' tax advantage, but I still think we will probably use it up to our deductible (2800). We can put in 7600 though, and my school system pays 50 per month into it, so I think it's still going to build plenty.

Unless you're contributing for last year or you're over 55, the max family for 2021 is $7200 and that includes both your contributions and company contributions.

talltexan

  • Magnum Stache
  • ******
  • Posts: 4400
Re: What to invest in for HSA
« Reply #12 on: March 15, 2021, 07:35:09 AM »
Take the max out-of-pocket, subtract your annual contributions, and that could be kept in cash.

You don't want to have to sell risky investments based on the timing of health care expenses.