HSA Investment Allocation

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norm52
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Joined: Thu Feb 18, 2021 7:56 pm

HSA Investment Allocation

Post by norm52 »

Currently 25 years old with around 3k in HSA balance. How should I invest the 2k?

Below is the possible investment options:
https://drive.google.com/file/d/1dbImq6 ... sp=sharing
niagara_guy
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Joined: Tue Feb 11, 2020 8:32 am

Re: HSA Investment Allocation

Post by niagara_guy »

I would use WFSPX. It's a 500 index fund with low fees of 0.030% so if you can tolerate the risk of stocks I would go with it.
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FoundingFather
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Re: HSA Investment Allocation

Post by FoundingFather »

niagara_guy wrote: Wed Nov 24, 2021 4:09 pm I would use WFSPX. It's a 500 index fund with low fees of 0.030% so if you can tolerate the risk of stocks I would go with it.
I agree with this advice, but make sure you are being honest about your ability to tolerate risk.

As a pediatric hematologist/oncologist, I spend most of my days working with families that were not financially prepared for a new, surprising, budget-devastating diagnosis. Make sure that you have the ability to cover your max out of pocket, however you plan to, with money from whatever source. HSAs are great long term investment and retirement vehicles, so many decide to keep HSA money intact and pay for expenses out of their checking account. However, if you might need this HSA money to pay for something, I'd recommend keeping an amount equal to your max out of pocket in something less volatile (i.e. VAIPX or something similar), and the remainder in a total stock market fund.

Founding Father
“They accomplished a revolution... [and] reared the fabrics of governments which have no model on the face of the globe... which it is incumbent on their successors to improve and perpetuate.” James Madison
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grabiner
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Re: HSA Investment Allocation

Post by grabiner »

It makes sense to allocate your HSA (beyond what you are saving for current medical expenses), IRA, and 401(k) as a single allocation, since they are all being invested for retirement expenses. Thus, for simplicity since the HSA is so small, it's reasonable to hold just one fund there.

You have two very good options: an S&P 500 index WFSPX at 0.03% expenses, and an EAFE index BTMKX at 0.04% expenses. These are ideal core holdings for large-cap, one domestic, one international. Either one would be fine; the preference might depend on whether your 401(k) has better US or foreign stock options.

If you live in CA or NJ, and TIPS are appropriate for part of your portfolio, use VAIPX, Vanguard Inflation-Protected Securities. CA and NJ do not recognize HSAs, so you will owe state tax on dividends and capital gains in stock funds; TIPS are exempt from state tax. (In NJ, capital gains on the TIPS fund are also state tax-exempt; CA taxes capital gains.)
Wiki David Grabiner
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