First timer with ETFs through HSA - not sure what to do

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hoppy08520
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First timer with ETFs through HSA - not sure what to do

Post by hoppy08520 » Mon Feb 12, 2018 4:52 pm

I've been investing for 25 years with mutual funds but now I have a TD Ameritrade account with HSA Bank, my new HSA through my employer. I have around $35K in the HSA that I can invest, which is rolled over from my former HSA mutual funds.

I was about to place my first ever ETF trade this morning and got paralyzed with all the options - market order, limit order, stop order, etc. I think I'd rather do ETFs with TDA given the lower cost ($6.95 compared to $49.99)

I was planning to do a blend of VT (Vanguard Total World Stock) and BND (Total Bond) with the $35K, so that would be two trades. I also will set up recurring contributions with regular payroll contributions to my HSA; for these, I would use a SPDR total market fund to avoid the $6.95 trade fees for every transaction that I would pay if I were to buy more of the Vanguard ETFs. It looks like I can do this in HSA Bank's interface.

As a Boglehead, I am looking to do mostly "buy and hold" with dividend re-investment with these two Vanguard funds. If I have to rebalance, I'll do that through regular contributions, or in my other accounts.

What would you recommend? Or what should I read? Most of what I read seems geared to investor junkies which I'm not. This is intimidating :shock:
Last edited by hoppy08520 on Mon Feb 12, 2018 5:29 pm, edited 1 time in total.

bloom2708
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Re: First timer with ETFs - not sure what to do

Post by bloom2708 » Mon Feb 12, 2018 4:55 pm

I would stop and do nothing until you understand the differences between Mutual Funds and ETF.

Did the flashy name Exchange Traded Fund catch your eye? More "Trading" with ETFs?

Mutual Funds work great for buy and hold investing. Buy more of the few things you need rather than something else.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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hoppy08520
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Re: First timer with ETFs - not sure what to do

Post by hoppy08520 » Mon Feb 12, 2018 5:06 pm

bloom2708 wrote:
Mon Feb 12, 2018 4:55 pm
I would stop and do nothing until you understand the differences between Mutual Funds and ETF.

Did the flashy name Exchange Traded Fund catch your eye? More "Trading" with ETFs?

Mutual Funds work great for buy and hold investing. Buy more of the few things you need rather than something else.
Thanks. So, given my needs and current knowledge, would you recommend that for now, I simply buy one of the Vanguard LifeStrategy funds and pay the $49.99 trade fee, compared to making two ETF trades? I'd be happy with a LifeStrategy fund. I'd just leave it there. I just don't want to make a mistake with the $35K which is a large amount (to me).

Then, I'd continue to learn about ETFs and how to handle my ongoing investments from my HSA.

BTW, I don't really care about flashy names. I didn't want to trade ETFs, I don't have a choice. My employer-provided HSA investment account is with TD Ameritrade and unless I want to pay $100/month to buy mutual funds with my twice-monthy HSA payroll contributions, then I'll need to trade ETFs.

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oneleaf
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Re: First timer with ETFs - not sure what to do

Post by oneleaf » Mon Feb 12, 2018 5:09 pm

bloom2708 wrote:
Mon Feb 12, 2018 4:55 pm
Did the flashy name Exchange Traded Fund catch your eye? More "Trading" with ETFs?
Is this really necessary? The original poster gave a very valid reason to choose ETF's. In his HSA account, ETF's are much cheaper to buy. Nothing flashy about the ETF's he chose.

To the OP: The two ETF's you mentioned have very high volume. Generally, you just need to do it during regular market open hours. Do a limit order at the ask-price (there is a bid price and an ask price. If you set it at the ask price, your order should get executed as soon as you submit it). You need to figure out how many shares you want to buy (divide the dollar amount you want to buy by the ask-price to get the number of shares). It is pretty simple and you'll get the hang of it after a few purchases.

livesoft
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Re: First timer with ETFs - not sure what to do

Post by livesoft » Mon Feb 12, 2018 5:10 pm

hoppy08520 wrote:
Mon Feb 12, 2018 4:52 pm
I was planning to do a blend of VT (Vanguard Total World Stock) and BND (Total Bond) with the $35K, so that would be two trades. I also will set up recurring contributions with regular payroll contributions to my HSA; for these, I would use a SPDR total market fund to avoid the $6.95 trade fees for every transaction that I would pay if I were to buy more of the Vanguard ETFs. It looks like I can do this in HSA Bank's interface.T

As a Boglehead, I am looking to do mostly "buy and hold" with dividend re-investment with these two Vanguard funds. If I have to rebalance, I'll do that through regular contributions, or in my other accounts.

What would you recommend? Or what should I read? Most of what I read seems geared to investor junkies which I'm not. This is intimidating :shock:
I have had an HSA account with a SDBA at TDAmeritrade for several years now. I use the commission-free ETFs. I do not pay commissions for the ETFs in my SDBA.

I do not think you completely understand how your setup works. Who is the custodian of your HSA? Do you have to transfer money to your TDAmeritrade SDBA (self-directed brokerage account) manually? Do you have to keep a minimum in your Health Savings Account (not including the SDBA TDAmeritrade) to avoid monthly fees? Do you expect to use that money to pay Healthcare expenses in 2018? If you make a regular contribution through payroll deductions, does it goes to the savings account? How does it get to the SDBA?

You should know the answers to my questions. I am sure they are in the paperwork associated with your setup.

As for which ETFs to buy, I use SPAB (like BND), SPTM (like VTI), and others. I recommend you slow down and do lots more research with your accounts before you do anything else including submitting any orders to buy ETFs. I would not buy mutual funds for a fee at TDAmeritrade. You can find some index mutual funds that have no commissions (saving your $50) though if you insist on using mutual funds.
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albion
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Re: First timer with ETFs - not sure what to do

Post by albion » Mon Feb 12, 2018 5:22 pm

I also have a TD Ameritrade account. I'd recommend using a limit order ("buy the ask" for index funds generally). ETFs for stock indexes are fine; I buy VTI. Most bond indexes are better bought as Mutual Funds; though I do own BND as an exception. If you can trust yourself to treat an ETF as a long term investment and not as a short term trade (psychologically) then in many cases ETFs are fine as an alternative to Mutual Funds and have certain benefits (with the exception of many bond funds).

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hoppy08520
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Re: First timer with ETFs - not sure what to do

Post by hoppy08520 » Mon Feb 12, 2018 5:27 pm

Thanks Livesoft, I appreciate it.
livesoft wrote:
Mon Feb 12, 2018 5:10 pm
hoppy08520 wrote:
Mon Feb 12, 2018 4:52 pm
I was planning to do a blend of VT (Vanguard Total World Stock) and BND (Total Bond) with the $35K, so that would be two trades. I also will set up recurring contributions with regular payroll contributions to my HSA; for these, I would use a SPDR total market fund to avoid the $6.95 trade fees for every transaction that I would pay if I were to buy more of the Vanguard ETFs. It looks like I can do this in HSA Bank's interface.T

As a Boglehead, I am looking to do mostly "buy and hold" with dividend re-investment with these two Vanguard funds. If I have to rebalance, I'll do that through regular contributions, or in my other accounts.

What would you recommend? Or what should I read? Most of what I read seems geared to investor junkies which I'm not. This is intimidating :shock:
I have had an HSA account with a SDBA at TDAmeritrade for several years now. I use the commission-free ETFs. I do not pay commissions for the ETFs in my SDBA.
livesoft wrote:
Mon Feb 12, 2018 5:10 pm
I do not think you completely understand how your setup works. Who is the custodian of your HSA? Do you have to transfer money to your TDAmeritrade SDBA (self-directed brokerage account) manually? Do you have to keep a minimum in your Health Savings Account (not including the SDBA TDAmeritrade) to avoid monthly fees? Do you expect to use that money to pay Healthcare expenses in 2018? If you make a regular contribution through payroll deductions, does it goes to the savings account? How does it get to the SDBA?

You should know the answers to my questions. I am sure they are in the paperwork associated with your setup.
My HSA is with HSA Bank. I need to keep a $2,000 minimum in the HSA Savings account; no monthly fees with this balance - employer covers that. I have set up the "auto sweep" feature to sweep any excess (in $25 intervals) from the HSA Savings account into my SDBA at TDA, so when I get paid twice per month, my employer sends my contributions directly to HSA Bank, and then HSA Bank will auto-sweep to the SDBA. I currently have a little over $2,000 in the HSA Bank Savings Account, and around $35K in my linked SDBA at TDA. I can pay for medical costs out of pocket, so I've been investing my HSA since I got it four years ago and have not make any reimbursements yet. Until recently, I was at BenefitWallet which had Vanguard mutual funds.
livesoft wrote:
Mon Feb 12, 2018 5:10 pm
As for which ETFs to buy, I use SPAB (like BND), SPTM (like VTI), and others. I recommend you slow down and do lots more research with your accounts before you do anything else including submitting any orders to buy ETFs. I would not buy mutual funds for a fee at TDAmeritrade. You can find some index mutual funds that have no commissions (saving your $50) though if you insist on using mutual funds.
Thanks for the advice. I will read more about ETFs in general, and "practice" with some commission-free smaller trades with SPTM (SPDR Portfolio Total Stock Market ETF) and SPAB which I could fit to my AA. Then once I've figured it out, I'll do a larger trade into VT or BND, or maybe just stick with the SPRD ETFs.

nps
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Re: First timer with ETFs - not sure what to do

Post by nps » Mon Feb 12, 2018 6:46 pm

hoppy08520 wrote:
Mon Feb 12, 2018 5:27 pm
I have set up the "auto sweep" feature to sweep any excess (in $25 intervals) from the HSA Savings account into my SDBA at TDA, so when I get paid twice per month, my employer sends my contributions directly to HSA Bank, and then HSA Bank will auto-sweep to the SDBA.
Thanks for posting this. I've been using HSA Bank for years but never noticed the auto sweep option. Wish it could sweep down to $0 instead of $100 but even so it's well worth it to avoid having to manually transfer contributions over every two weeks.

aristotelian
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Re: First timer with ETFs through HSA - not sure what to do

Post by aristotelian » Mon Feb 12, 2018 7:47 pm

OP, in a non-taxable account, I would go with TD's free ETF's that correspond to the indexes you want to track. In this case, it would be SPTM (Total Stock Market) and SPAB (Aggregate Bond). These would be nearly identical in performance to Vanguard Total Stock Market and Vanguard Total Bond Market.

The only difference is how you buy them. The first thing you want to do is check the difference between current Bid and Ask. Heavily traded funds will have a very narrow spread because people are constantly bidding. People like Vanguard because the spread is usually just a couple of cents at the most. If the bid/ask spread is small, then you can place a market order with confidence and it will process instantly.

The only issue with ETF's arises if there is a big difference between Bid and Ask. There has been some hesitation to use TD Ameritrade because smaller funds could have bigger bid/ask spreads. At that point, you could get taken advantage of by going with a market order. So you place a limit order and enter the max bid you are willing to pay, i.e. by splitting the difference between the current Bid and Ask.

Honestly if you stick with SPTM and SPAB, you will likely be fine placing a market order, because these are very heavily traded funds. But do check the bid/ask spread before executing.

If you are nervous, do a transaction for 1 share at first. No downside as long as you stick to their commission free list.

motorcyclesarecool
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Re: First timer with ETFs through HSA - not sure what to do

Post by motorcyclesarecool » Tue Feb 13, 2018 4:59 am

+1 for simply using SPTM and SPAB. I didn’t like losing Vanguard ETFs in my TDA self directed brokerage, but I’ve gotten used to the SPDR offerings, which have very low ERs. Also, you can setup a DRIP within TDA so that your dividends are reinvested automatically.

Unfortunately, there seems to be no good way of automatically buying shares with the proceeds of my HSA Bank auto-sweeps. I wish I could set it to DCA my money in and forget it. Instead, I logon a few times a year to buy. I admit to buying shares on our most recent “Really Bad Day”. I need to make sure I keep the draw to time the market in check.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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hoppy08520
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Re: First timer with ETFs - not sure what to do

Post by hoppy08520 » Tue Feb 13, 2018 10:31 am

nps wrote:
Mon Feb 12, 2018 6:46 pm
hoppy08520 wrote:
Mon Feb 12, 2018 5:27 pm
I have set up the "auto sweep" feature to sweep any excess (in $25 intervals) from the HSA Savings account into my SDBA at TDA, so when I get paid twice per month, my employer sends my contributions directly to HSA Bank, and then HSA Bank will auto-sweep to the SDBA.
Thanks for posting this. I've been using HSA Bank for years but never noticed the auto sweep option. Wish it could sweep down to $0 instead of $100 but even so it's well worth it to avoid having to manually transfer contributions over every two weeks.
nps, I am not sure if all HSA Bank account holders have this option. I access my HSA Bank account through my Cigna health insurance portal, not directly in the "front door" website of HSA Bank. My option to do "Auto-Sweep & Recurring Transfers" is from a subdomain URL of HSA Bank (mycigna.hsabank.com), so I'm not sure if everyone has this option or not. Maybe you can click around your site and see if you have it.

Once I click into "Auto-Sweep & Recurring Transfers", I can choose either auto-sweep, or recurring transfer of a fixed $ amount on an interval I specify.
motorcyclesarecool wrote:
Tue Feb 13, 2018 4:59 am
Unfortunately, there seems to be no good way of automatically buying shares with the proceeds of my HSA Bank auto-sweeps. I wish I could set it to DCA my money in and forget it. Instead, I logon a few times a year to buy. I admit to buying shares on our most recent “Really Bad Day”. I need to make sure I keep the draw to time the market in check.
motorcyclesarecool, I think you're right. I guess I'll need to do a manual trade once or twice a month to DCA my HSA funds. I do wish there was a more "set it and forget it" option like I have in my 401(k). Oh well.

Thank you both for your replies!

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hoppy08520
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Re: First timer with ETFs through HSA - not sure what to do

Post by hoppy08520 » Tue Feb 13, 2018 6:25 pm

Thanks for your help everyone, I think I get the idea now. I did a couple of 1-share commission-free trades with SPTM (SPDR Portfolio Total Stock Market ETF), using the "Limit" option, entering what was the current Ask amount as my Price, and it processed quickly. The bid/ask spread was only $0.01 so as long as I stick with these big funds and since my overall trading amount is not huge, I should be fine.

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