How I Invested my HSA
An HSA is one of the best-kept secrets out there because of its versatility. My current employer offered an HSA back in 2016 but I brushed it off to opt-in for the PPO plan.
In 2019 when I did more research into what an HSA is and how it was helpful to the future financial goals I was determined to open an HSA as soon as possible.
First let’s just go over a quick refresher on what a HSA is and why is it useful?
What is a Health Savings Account (HSA)?
An HSA is a health insurance option featuring a high deductible insurance plan and a savings account component, hence the name.
The plan’s deductible must be a minimum of $1,500. Once the deductible is met, the plan will cover your claims. For example, my HSA plan will cover 90 percent of the costs of a doctor’s visit and 90 percent of prescription costs after the deductible is met. I will be responsible for 10 percent of the cost.
An HSA offers triple tax benefits whereas, the contribution is tax-deductible, the gains are tax-free, and withdrawals are tax-free so long as they’re used for qualified medical expenses.
The annual limit on HSA contributions for 2021 will be $3,600 for self-only and $7,200 for family coverage.
My contributions are automatically deducted from my paycheck in the amount of 138.46 per pay check.
The rules from Optumbank and I are sure it is the same with other HSA providers are that you have to have a minimum of $2,000 in the savings account before you are allowed to invest the excess amount.
The amount that you can use to invest is what we are focusing on today.
What’s in my HSA account?
As of this writing, my HSA savings has $2,019.34 and $2,275.23 in the investment portion. The return of investment has enjoyed the upward trending of the stock market with a 17.96% gain since the inception date of 8/12/2020.
I am a big fan of the three-fund portfolio and I tried to emulate that inside my HSA portfolio. Similar to a 401k account offered by my employers, Optum gives you a list of choices to pick from.
Of note, Optum gives you the option of having a robo-advisor to help invest your money for you. The robo-advisor featured from Optum is none other than Betterment.
Optum Bank mutual funds include:
- Vanguard funds
- Target date funds
- Lifestyle funds
Here’s a list of choices that I could pick from. From here, you can choose different investment strategies and approaches. There are really two options that I really like. Pick the Schwab target-date funds and forget about it. The expense ratio for the target date funds is 0.13% which is not bad at all.
The second option is to build my own portfolio and I picked this option.
I kept things simple by choosing the total stock market index funds, total bond fund, and a REIT fund. I chose the REIT fund because the international fund offered: Vanguard Global Equity Inv(VHGEX) charges a 0.48% expense ratio. The other reason is that I have been wanting to add a REIT fund to my portfolio.
|Vanguard Total Stock Market Idx I(VITSX)
|Vanguard Total Bond Market Index I (VBTIX)
|Intermediate Core Bond
|Vanguard Real Estate Index Institutional (VGSNX)
In keeping with simplicity, I’ve kept a similar asset allocation with my Roth IRA account. I could use the rule of 120 to see how much equity I should have in this account.
If you’re not familiar with the rule of 120 or 100, you take 100 or 120 minus your age to get the percentage of equity you’re targeting in your portfolio.
My HSA portfolio asset allocation is this:
- 60 percent VITSX
- 30 percent VGSNX
- 10 percent VTTIX
I really don’t really to rebalance this portfolio since anything in excess of $2,000 from my HSA savings account will be automatically swept by Optum and invested on my behalf according to my predetermined preferences.
Thus far, as mentioned above, my portfolio has a 17.96% ROI and the monetary values are as follows:
- 60 percent VITSX: $1,400,80
- 30 percent VGSNX: $669.67
- 10 percent VTTIX: $205.04
Total balance: $2,275.51.
I am extremely proud that I started an HSA account and started an investment portfolio within it. Although it is modest right now, I have time before my retirement for it to grow.
I am a fairly healthy person so I’ve been paying out of pocket for my medical expenses. I kept receipts of the expenses so that I can reimburse myself later if needed.
I am sure I will have a good use for this account since according to Fidelity:
According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2020 may need approximately $295,000 saved (after tax) to cover health care expenses in retirementFidelity