I’ve been on an HSA+HDHP for a couple of years now and only realized recently the interest earned from investing HSA money is also tax free, so I want to start investing a part of my savings and see how it goes. I have 2 options, Betterment or Mutual Funds. I figured I’d try the latter to avoid fees, but I’m not sure which funds to choose. My HSA currently provides 30 fund options.
I see people mentioning Vanguard a lot so I spread out my initial investment into 25% chunks across 4 different Vanguard funds. How did I choose them? Well I literally just looked at the performance graphs and selected the ones that historically went up steadily without major dips. As a total noob, how can I improve my choices? Is there a simple way to decide without having to dive deep into the stock market?
You must log in or register to comment.
A total market fund, or S&p 500 fund would be a good start. Pick something with a low percentage fee
100 percent this. Anything SP backed is gonna be safe. Unless you can do a CD, some have good rates of like 4-5 percent. T-bills tend to be too low yield for me tho.
Thanks! Noob question - what is a “low percentage fee” in this context?
It’s the fee the fund manager charges. Looking at mine, they call them expense ratios. Big broad stuff like S&p and total market is typically low fee <1%. But something that tracks a specific market sector, or a really active fund could charge >5%
Gotcha. Thank you for the explanation!
Just to emphasize the importance of low expense ratios: you don’t just lose the money you pay to the fund manager. Over time you also lose what that money could have made if it had stayed invested. Even a modest retirement fund can have an opportunity cost of $50k by the time you retire. As another commenter said, Vanguard tends to have the lowest fees.
Decimal fractions of a percent are low fee. Vanguard is mostly, if not completely, low fee.
Go for whatever is the most diverse, without dipping too heavily in any one area.
Thanks. What does “diverse” mean in that context? I split it equally into 4 chunks, although all Vanguard. Do you mean I should also put it into non-Vanguard mutual funds like Schwab, etc.? Vanguard is like 10 of the 30 of my options to choose from.
I mean among positions. If you have 50% apple, 50% nvidia, you only have 2 stocks. Mutual funds are different baskets of stocks, but they can overlap, ie a US and a World Total fund would be doubled up on US.
I focus on market-cap weighted total world funds. I have 2 ETFs, VT and BNDW, and yet am the most diversified possible.
You can have it all with one brokerage in one fund and still be diversified. Suggest reading up on the 3 fund portfolio or boggle head.
S&P 500 is top 500 US companies. Many folks consider that diverse. You can also probably find a US Total Market fund. That will be even more diverse as it will include small and mid size companies in addition to the top 500.
Alternatively, even more diverse would be a Total Market fund. These typically include international companies, and represent the biggest diversification you can get.
No need to worry about Vanguard versus Schwab . The underlying stocks of the fund is what matters.
Thank you! Your explanation clicked in my head. I thought Vanguard vs Schwab, etc. meant different underlying stocks; didn’t understand that’s the brokerage. I will definitely take everyone’s advice and look at the S&P 500 (I think that’s one of 4 I chose, I’m not at my desk right now).
I’m lazy and went VWCE. A world wide index fund with exposure to US, EU, and Asian markets.
I buy a bunch every year, I don’t care about the buy price because the fund follows the market. If I get a few less because I got it on a rally, meh. If I get more because I got it during a dip, neat.
I joined https://www.bogleheads.org/ which was also when I started learning about mutual funds
Bogle started the first index fund family (Vanguard), so there is an index fund bias with many there, but the forum has very knowledgeable people. (Full disclosure, I am busy, and use indexing myself, but not in Vanguard.)
You have managed to hit the best all-around choices on your first try.
The large difference is to learn to have the discipline to ride out the ups and downs of investing. In a recession, it is a gut punch to see your hard-earned investments drop. The losing segment says the whole market is rigged, screw this and lock in their losses by selling. When the market improves, highs are being clocked, these same are likely to forget their previous folly and buy in again. It is investing that is controlled by emotions, and is a buy high, sell low outcome. Mastering your emotions in investing is the key to investing. Many people give 1/4th of their money to brokers so that they will be reminded of the previous paragraph, when they need it most.
We are financially independent thanks to indexing, and using emotions in a constructive way. We also have been through a few ups and downturns, making money in each cycle, by riding it out, and asset allocation.
Follow your plan and ride things out, and you will likely be a multi-millionaire. It is not overnight, though.
We’d really need to know what the 30 options are, to recommend one.
But I’d really recomend against it. The point of an HSA is to have cash available for medical expenses and emergencies. Over the long term (decades) index funds do consistently trend up. But on any given day, you never know. Money you were expecting to be there might not be. Now you’ve got a whole other problem.
If you have more money than you can imagine needing in the HSA, pick something with slow consistent growth and low or zero volatility.
Thanks for the advice. Yup, I realize health funds shouldn’t be gambled, that’s why I’m taking a conservative approach and just investing a small % of my HSA. I’m at a point right now where I have enough funds for current health needs and emergencies (my current HDHP coverage is pretty good), so I’m just dipping my toes with increasing those funds via other avenues.
And for the 30 options, I’ll post back here when I get back to my desk.
schwab has an autobalancing option for a mix of stocks, bonds, and if you set it aggressive even commodoties I think. then there are at least I think two mutual funds that autobalance stocks and bonds and I think vanguard has one of them but you will have to look them up as a quick search did not get it for me and I don’t feel like going further. but its a thing that exists.
- Low cost
- Broad base
- Index fund
The only three things you need to know about index investing.
The largest cost factor you can control is costs so if you want to improve your selection look for funds that have very low fees (I.e. <1%)
This fund will literally beat the vast majority of actively managed funds over 10 years.
Don’t believe me though, just read ‘The Bet’ section in the 2016 Berkshire Hathaway letter to shareholders.
