HSA Investment Advice: Spending Vs. Investing Your HSA Funds

If you’re unsure whether to spend or invest your health savings account (HSA) funds, you’re not alone. Only 5% of HSA holders invest at least a portion of their funds, according to industry tracker Devenir. One reason people don’t invest HSA funds is they need the money to pay for medical expenses. But for those who don’t, a lack of understanding about their investment options could be holding them back.


Here’s what experts say you should ask yourself before using HSA funds to invest:

  • Are your medical expenses relatively predictable?
  • Can you afford to pay for most of your current or expected medical expenses out of pocket?
  • What is the minimum cash amount you must have to cover known medical expenses?
  • Do you have an emergency fund to cover all expenses for three to six months?

HSA Investing Strategy

An HSA is a type of savings account that lets you set aside money on a pretax basis to pay for qualified medical expenses. You can use untaxed dollars to pay medical bills and even invest the balance in your account to cover future costs, including in retirement. The one caveat is you can only contribute to an HSA if you have a high deductible health plan (HDHP). Most employers offer HDHP plans and HSAs as part of their health insurance options.


If, after the assessment above, you find yourself with some extra funds in your HSA, consider what investing that money can do for you. Devenir says the average account holder who invests at least a portion of HSA funds has a total balance of $15,445, including investments and deposits. That’s more than five times a non-investment holder’s account balance.

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That rate of return can go a long way to pay future medical expenses, especially since a recent Fidelity study showed that a 65-year-old couple today will need about $295,000 to cover medical costs in retirement. Of course, investments are not guaranteed to grow. You may want to consult an investment advisor before making any decisions.

Once you’ve figured out how much you can afford to invest, the next step is to decide what strategy you will use.

Should You Use Your HSA For Retirement?

Consider other types of investments you already have. Do you have a 401(k)? Look at the mix of investments you have in that account. Depending on your age and risk tolerance, you’ll choose among aggressive, moderate and conservative investment vehicles, which can include stocks, bonds, mutual funds and ETFs.

Cathy Curtis, founder and president of Oakland, Calif.-based Curtis Financial Planning, says about a third of her clients own an HSA account. A little more than half of her clients with health savings accounts invest some of their HSA funds. Generally, she advises her clients to be conservative.

“This isn’t money that you want to mess around with,” she told IBD. “If you’re going to save it for future health care, why take a lot of risk with it?”

That said, she suggests younger people can be more aggressive. A 30-year-old with a target-date fund for 35 years that has an 80/20 ratio of stocks to bonds is reasonable, she says.

“If they tell me they may use it, that’s a whole other story,” Curtis said. “You don’t want to be in all stocks if you’re going to use the money, and maybe when you want to use it, the market is down.”

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And an older person should probably stick closer to a 60/40 ratio of stocks to bonds.

How To Invest HSA Funds: Watch Those Fees

Among the most important features to assess if you want to invest your HSA funds for the long term is fees. Think not only about account fees associated with maintaining an HSA but also fees tied to your investments.

“You want to make sure that they don’t nickel and dime you on fees,” Curtis said.

Among IBD’s 12 Best HSAs for 2021, HealthEquity, Fidelity, HSA Authority and Bank of America offer some of the lowest investment-related fees.

HSA Investment Options

Some HSA account providers, like Saturna, offer a huge selection of investments and the maximum freedom to manage your own investments. If you go this route, you can track your stock picks with various IBD tools, including MarketSmith and IBD Stock Checkup. For expert investors, this might sound like a perfect option. For others, this could prove too complicated.

HealthEquity (HQY) founder and Vice Chairman Steve Neeleman has found that “if you overwhelm the consumer and there are too many choices, they’ll get nervous and won’t invest.”

That’s why HealthEquity offers a carefully curated list of low-cost Vanguard funds. “We keep a close eye on the funds and make sure they’re performing well,” Neeleman told IBD. “And every once in a while we’ll change the funds out.”

HealthEquity also revamped its digital platform in January with Investment Desktop 2.o to make it easier for people to track their investments.

“We’ve always felt like if we don’t make it easy for people, then they’re going to fall out of the process,” Neeleman said.

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Best HSAs For Investing

IBD’s Best HSAs list includes options for savvy independent investors as well as novices. While Saturna’s HSA offers the most freedom, many others offer a mix of self-directed brokerage and curated options to satisfy all levels of investors. Those include Fidelity, UnitedHeathcare‘s (UNH) Optum HSA, Webster Bank‘s (WBS) HSA Bank, Further and Lively.

Some providers stick to curated options, like HealthEquity does, making it easier for people who may be too busy to closely follow their investments. IBD’s best HSA providers with only curated options include UMB HealthServices, Old National Bank‘s (ONB) HSA Authority, HSA Administrators and Bank of America (BAC).

Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.


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View more information: https://www.investors.com/etfs-and-funds/personal-finance/hsa-investment-advice-hsa-funds-2/

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