Advice on fixing my HSA allocations

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YoungSisyphus
Posts: 346
Joined: Mon Sep 24, 2018 7:35 am

Advice on fixing my HSA allocations

Post by YoungSisyphus »

Hey there,

I am not completely happy with my HSA bucket of investments. I had looked at it as a separate fund outside my full portfolio allocation. Maybe first decision point is if I should do that or not (vs. just looking at allocations across all accounts). This is not a huge sum of money in this account - talking ~$25k - so I suppose in a way the allocation decision is rather insignificant to the whole.

Let's say I decide to allocate HSA separately. The reason I like to do this is that I see it as a 'break glass' in case of emergency medical fund that I'd hit first for a major health expense. I had built the fund in 2020 to be more risk adverse (with lower return) that I could pull from rather quickly if there's an unforeseen incident. But given the poor performance of bonds it hasn't really even done that. I also have $60k in I-Bonds that will be available starting January 2023, and $40k in cash. Both of these I would also use in emergencies.

Here's how it currently shapes up:
1. 25% in Cash (these are mostly annual contributions and employer matches that I haven't tended to in some time)
2. 40% in Bond funds (now down 13% total loss and drifted down in allocation)
3. ~22% in total market index fund (drifted up a bit with a 22% total gain)
4. ~15% in Money Market

What would you advise I do with this bucket? Try to find a ~2% money market for it? Shift out of bond funds (or just stay in - the reason I consider shifting OUT is in case of emergency I would need to tap at a loss anyways) and re-allocate into more liquid funds? Go 50/50 stocks and lower risk savings?
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grabiner
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Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Advice on fixing my HSA allocations

Post by grabiner »

If you are planning to use the HSA for medical expenses, then at least one year's deductible should be in low-risk funds, and one year's out-of-pocket max is reasonable, as this is part of your emergency fund.

But the rest of the HSA is growing tax-free for spending in retirement, so it should be invested as if it were part of your Roth IRA, which is also growing tax-free for spending in retirement. A total-market index makes sense if that fits your investment needs and the HSA provider has a good option.
Wiki David Grabiner
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