Help with HSA Investments

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bunkyfarm
Posts: 7
Joined: Sat Jul 29, 2017 9:15 am

Help with HSA Investments

Post by bunkyfarm » Sat Jul 29, 2017 9:23 am

Hi - I am a new comer to the Bogelhead universe looking for some help with investing our HSA which is through HealthEquity (Anthem). Wife and I have decided to take charge of our investments and move accounts to Vanguard. We have decided on a 70/30 4 Fund Asset Allocation.

Vanguard Total Stock Market Index Fund (VTSAX) (Admiral Shares) - 38%
Vanguard Total International Stock Index Fund (VTIAX) (Admiral Shares) - 22%
Total Bond Market Index Fund (VBTLX) (Admiral Shares): 24%
Vanguard Total International Bond Index Fund (VTIBX) (Investor Shares): 6%

We have decided to aim for early retirement and therefore invest 100% of our HSA and pay out of pocket for medical expenses until we retire and use the HSA to fund medical expenses in retirement. I'm trying to figure out how best to copy the AA above given the investment choices provided in our HSA (below).

All advice appreciated. Thanks!

Add Category Symbol Fund Name Mgt. Style OER 1 yr* 3 yr* 5 yr*
SMALL VALUE
VSIAX

Choice $
VANGUARD SMALL CAP VALUE INDEX ADMIRAL Passive 0.07% 19.15% 7.52% 15.01%
INTERMEDIATE-TERM BOND
VBMPX

Choice $
VANGUARD TOTAL BOND MARKET IDX INSTLPLS Passive 0.03% -0.42% 2.45% 2.16%
TARGET-DATE 2060+
VTTSX

Choice $
VANGUARD TARGET RETIREMENT 2060 INV Passive 0.16% 17.00% 5.92% 11.17%
LARGE GROWTH
VIGIX

Choice $
VANGUARD GROWTH INDEX INSTITUTIONAL Passive 0.05% 20.14% 10.15% 14.87%
TARGET-DATE 2020
VTWNX

Choice $
VANGUARD TARGET RETIREMENT 2020 INV Passive 0.14% 10.30% 4.85% 8.40%
ALLOCATION--30% TO 50% EQ
VWIAX

Choice $
VANGUARD WELLESLEY INCOME ADMIRAL Passive 0.15% 5.04% 5.36% 7.22%
TARGET-DATE 2040
VFORX

Choice $
VANGUARD TARGET RETIREMENT 2040 INV Passive 0.16% 16.49% 5.85% 11.10%
TARGET-DATE RETIREMENT
VTINX

Choice $
VANGUARD TARGET RETIREMENT INCOME INV Passive 0.13% 5.23% 3.47% 4.91%
MID-CAP BLEND
VEMPX

Choice $
VANGUARD EXTENDED MARKET INDEX INSTLPLUS Passive 0.05% 21.64% 6.95% 14.39%
FOREIGN LARGE BLEND
VTPSX

Choice $
VANGUARD TOTAL INTL STOCK IDX INSTLPLS Passive 0.07% 20.10% 1.39% 7.72%
INFLATION-PROTECTED BOND
VTAPX

Choice $
VANGUARD SHRT-TERM INFL-PROT SEC IDX ADM Passive 0.07% 0.19% -0.07%
LARGE BLEND
VIIIX

Choice $
VANGUARD INSTITUTIONAL INDEX INSTL PL Passive 0.02% 17.88% 9.61% 14.62%
DIVERSIFIED EMERGING MKTS
VEMIX

Choice $
VANGUARD EMERGING MKTS STOCK IDX INSTL Passive 0.11% 18.93% 0.68% 3.40%
SHORT-TERM BOND
VBIRX

Choice $
VANGUARD SHORT-TERM BOND INDEX ADM Passive 0.07% 0.05% 1.26% 1.18%
TARGET-DATE 2030
VTHRX

Choice $
VANGUARD TARGET RETIREMENT 2030 INV Passive 0.15% 13.40% 5.42% 9.90%
NATURAL RESOURCES
VMIAX

Choice $
VANGUARD MATERIALS INDEX ADMIRAL Passive 0.10% 21.01% 5.23% 11.67%
MID-CAP VALUE
VMVAX

Choice $
VANGUARD MID-CAP VALUE INDEX ADMIRAL Passive 0.07% 17.96% 8.16% 15.67%
SMALL BLEND
VSMAX

Choice $
VANGUARD SMALL CAP INDEX ADM Passive 0.06% 19.14% 6.78% 14.13%
WORLD BOND
VTABX

Choice $
VANGUARD TOTAL INTL BD IDX ADMIRAL Passive 0.12% -0.64% 3.55%
INFLATION-PROTECTED BOND
VIPIX

Choice $
VANGUARD INFLATION-PROTECTED SECS I Passive 0.07% -0.78% 0.68% 0.25%
TARGET-DATE 2050
VFIFX

Choice $
VANGUARD TARGET RETIREMENT 2050 INV Passive 0.16% 16.99% 5.99% 11.18%
REAL ESTATE
VGSNX

Choice $
VANGUARD REIT INDEX INSTITUTIONAL Passive 0.10% -1.88% 8.09% 9.30%
LARGE VALUE
VVIAX

Choice $
VANGUARD VALUE INDEX ADM Passive 0.06% 16.46% 8.74% 14.38%

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grabiner
Advisory Board
Posts: 22531
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Help with HSA Investments

Post by grabiner » Sat Jul 29, 2017 3:28 pm

Welcome to the forum!

Since your HSA and IRA are both being used to fund expenses in retirement, you should treat them as one account for asset allocation purposes. The HSA is small enough that ti will be simpler to manage with just one fund. I have a slight preference for bond funds in HSAs (so that unexpected stock market growth doesn't cause your HSA to exceed your medical expenses and become taxable), so I would use the Institutional Plus Total Bond Market Index, replacing some of the Total Bond Market Index in your IRA.

If you live in AL, CA, or NJ, then it would be better to use Inflation-Protected Securities, as those three states tax HSAs, and TIPS are exempt from state tax.
Wiki David Grabiner

dashtadj
Posts: 35
Joined: Sat Dec 26, 2015 7:03 pm

Re: Help with HSA Investments

Post by dashtadj » Sat Jul 29, 2017 5:34 pm

Just to be clear Healthequity isn't affiliated with Anthem, it's an independent entity.

Nonetheless, I'd suggest simply 1 low cost index fund for your HSA (Vanguard S&P fund if available?) and not worry as much about diversification (save that for your larger 401k).

IMHO S&P is good diversification tool anyways - global exposure w/ inflation protection (vs Bonds)

jcerickson
Posts: 29
Joined: Sat Aug 13, 2016 11:08 am
Location: Tampa, FL

Re: Help with HSA Investments

Post by jcerickson » Sat Jul 29, 2017 5:53 pm

grabiner wrote:....I have a slight preference for bond funds in HSAs (so that unexpected stock market growth doesn't cause your HSA to exceed your medical expenses and become taxable)....
Perhaps I'm just being dense, but would you please explain your comment above? How would your HSA become taxable if it exceeds your medical expenses? Is this a state-specific thing?

bunkyfarm
Posts: 7
Joined: Sat Jul 29, 2017 9:15 am

Re: Help with HSA Investments

Post by bunkyfarm » Sat Jul 29, 2017 8:06 pm

Thanks guys appreciate the help.

bunkyfarm
Posts: 7
Joined: Sat Jul 29, 2017 9:15 am

Re: Help with HSA Investments

Post by bunkyfarm » Sat Jul 29, 2017 8:29 pm

Doing a little more reading it seems HealthEquity charges a monthly administration fee of %0.033 for those funds on top of the fund fees.

Is this sound about average or is that high?

Thanks

TropikThunder
Posts: 994
Joined: Sun Apr 03, 2016 5:41 pm

Re: Help with HSA Investments

Post by TropikThunder » Sat Jul 29, 2017 9:07 pm

jcerickson wrote:
grabiner wrote:....I have a slight preference for bond funds in HSAs (so that unexpected stock market growth doesn't cause your HSA to exceed your medical expenses and become taxable)....
Perhaps I'm just being dense, but would you please explain your comment above? How would your HSA become taxable if it exceeds your medical expenses? Is this a state-specific thing?
To perhaps over-simplify:
  • - Traditional IRA: contributions are pre-tax but withdrawals are taxable
    - Roth IRA: contributions are after-tax but withdrawals are tax-free
    - HSA: contributions are pre-tax AND withdrawals are tax-free IF used for qualifying medical expenses.
If HSA withdrawals are spent on non-medical uses, then they act like a traditional IRA withdrawal (pre-tax in, taxable out). If your HSA is so large that you can't spend it all on medical expenses, then the rest of it becomes taxable when you spend it (and turns into a traditional IRA when it is passed down to heirs).

I agree with grabiner's point though about using a bond fund. I do that with my HSA, only holding BIV (Vanguard Intermediate Term Bond Fund ETF) because it's simpler (one fund). Also, since bond funds are less volatile, if life doesn't follow my plans and I need to use some HSA money for medical expenses, I avoid the sequence of returns risk of possibly having to sell a depressed equity fund to make a withdrawal.

jcerickson
Posts: 29
Joined: Sat Aug 13, 2016 11:08 am
Location: Tampa, FL

Re: Help with HSA Investments

Post by jcerickson » Sat Jul 29, 2017 9:23 pm

TropikThunder wrote:
jcerickson wrote:
grabiner wrote:....I have a slight preference for bond funds in HSAs (so that unexpected stock market growth doesn't cause your HSA to exceed your medical expenses and become taxable)....
Perhaps I'm just being dense, but would you please explain your comment above? How would your HSA become taxable if it exceeds your medical expenses? Is this a state-specific thing?
If HSA withdrawals are spent on non-medical uses, then they act like a traditional IRA withdrawal (pre-tax in, taxable out). If your HSA is so large that you can't spend it all on medical expenses, then the rest of it becomes taxable when you spend it (and turns into a traditional IRA when it is passed down to heirs).
Thanks, TropikThunder - I thought that might be one possible explanation but wasn't quite sure.

It would be nice to not need the entire contents of my HSA for medical expenses in retirement - if I'm so lucky, I won't worry too much about non-medical withdrawals treated as if a tIRA! :D
Last edited by jcerickson on Sun Jul 30, 2017 5:58 pm, edited 1 time in total.

TropikThunder
Posts: 994
Joined: Sun Apr 03, 2016 5:41 pm

Re: Help with HSA Investments

Post by TropikThunder » Sat Jul 29, 2017 11:56 pm

jcerickson wrote:Thanks, TropikThunder - I thought that might be one possible explanation but wasn't quite sure.

It would be nice to not need the entire contents of my HSA for medical expenses in retirement - if I'm so lucky, I won't worry too much it about non-medical withdrawals treated as if a tIRA! :D
Right?! If I have such a big HSA that I can't spend it all on healthcare, I'll consider that a win. :beer

djheini
Posts: 45
Joined: Fri Jul 29, 2016 5:53 pm

Re: Help with HSA Investments

Post by djheini » Sat Jul 29, 2017 11:57 pm

grabiner wrote: I have a slight preference for bond funds in HSAs (so that unexpected stock market growth doesn't cause your HSA to exceed your medical expenses and become taxable), so I would use the Institutional Plus Total Bond Market Index, replacing some of the Total Bond Market Index in your IRA.
If you're comparing between HSA and Roth, this makes sense. But if the options are HSA vs. traditional IRA/401(k), wouldn't it be better to have the investment with the higher expected return in the account where at least some of it will be non-taxable vs. the traditional IRA/401(k) where it's guaranteed to be fully taxable on withdrawal? You won't be worse off, but will be some degree of better off (unless you have 0 medical expenses)

cas
Posts: 309
Joined: Wed Apr 26, 2017 8:41 am

Re: Help with HSA Investments

Post by cas » Sun Jul 30, 2017 6:10 am

bunkyfarm wrote:Doing a little more reading it seems HealthEquity charges a monthly administration fee of %0.033 for those funds on top of the fund fees.

Is this sound about average or is that high?

Thanks
Morningstar released a big paper evaluating 10 large HSA plans, including HealthEquity, at the end of June. You may find it interesting to flip through, decide which of the aspects they are evaluating matter to you , and see how HealthEquity stacks up. On very, very, very brief glance through, it looks like HealthEquity investment account AUM fees are (by far) the highest among the 10 vendors, but their average expense ratio on individual funds is by far the lowest. So it kind of all depends on your individual circumstances and how you want to use the account how you decide which vendor's fees are high or low or average.

"2017 Health Savings Account Landscape" https://corporate1.morningstar.com/Rese ... landscape/

* "decide which of the aspects they are evaluating matter to you": Some of the criteria are more relevant to an employer selecting a plan for a large number of employees of varying investment expertise and less relevant to individual boglehead-types. For example, if you are an employer, *average* expense ratio across the fund menu might matter more to you, since there is less chance for naive employees to shoot themselves in the foot choosing high ER funds. But if you are an individual boglehead, *average* expense ratio doesn't matter much to you as long as there are at least 1 to 3 low ER funds that you can select from the menu.

plasma800
Posts: 86
Joined: Fri Dec 30, 2016 4:09 pm

Re: Help with HSA Investments

Post by plasma800 » Sun Jul 30, 2017 12:33 pm

I didn't read every post, but I put both mine and my wife's HSA at health equity into target retirement funds. Simple and easy.

AS AN ASIDE, watch your Health Equity account closely! They are prone to "errors". For instance, on 3 occasions they have assessed a large, unnamed fee. One was around 400, one was around 600 and one was around 1000! Each time I've called, they've reversed these fees, and cited computer error with apologies.

I have a feeling had I not been logging in every month and checking my statements closely, they'd have kept that money.

My wife also had lots of trouble getting her account to where she could invest all but 50 bucks of it. A lot of the reps are confused about the deal between Vanguard and Health Equity. You just have to keep battling with them until someone figures it out.

bunkyfarm
Posts: 7
Joined: Sat Jul 29, 2017 9:15 am

Re: Help with HSA Investments

Post by bunkyfarm » Sun Jul 30, 2017 5:47 pm

That's great information thank you guys. So glad I found this forum and Bogelhead investment philosophy! Cheers.

samorris74
Posts: 17
Joined: Mon Jan 23, 2017 6:31 pm

Re: Help with HSA Investments

Post by samorris74 » Tue Aug 01, 2017 11:17 am

I know I am a little late to this but here is what I do with my HE HSA. You can simulate the Total Stock Market by using two funds. The VIIIX and the VEMPX. I am going aggressive with my portfolio at a 90/10 stock to bond ratio.

My ratios are as follows but again, this is for a 90/10 so you would want to adjust accordingly.

VIIIX = 48%
VEMPX = 12%
That creates a 60% allocation to US stocks at a ratio in line with the Vanguard Total Stock Market Fund.
VTPSX = 30%
VBMPX = 7%
VTABX = 3%

Pretty aggressive portfolio but I am getting an 11% return this calendar year so that is always nice.

You mentioned paying out of pocket for medical expenses today and then saving your HSA for medical expenses at retirement. Not sure if this is what you mean but do you know you can pay for medical expenses out of pocket today and reimburse yourself from your HSA at retirement even if that is many years later? You just need to save your documentation. Hopefully that doesn't change but that would be an excellent way to get tax free money in retirement.

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