Investing HSAs at Fidelity

As part of some financial spring cleaning, I wanted to take action with several leftover HSAs (Health Savings Accounts) from former employers. I think I found a pretty great home for them and will share how I’ve invested these funds for future growth.

First, for those who work in the United States and are young/healthy, I cannot recommend HSAs enough. If your employer offers a healthcare option that comes with one, take it! (Even better if they offer matching contributions.) If you are getting your healthcare from the open market, look for plans with an HSA option. The tradeoff is that these plans need to have high deductibles, but preventative care is usually free and you won’t be using the actual plan very much if you are young & healthy.

Why are HSAs so great? HSAs are triply tax-advantaged, meaning contributions are tax-deductible (or enter pre-tax), any earnings grow tax-free, and withdrawals are also tax-free. They’re also known as “the ultimate retirement account” for early retirees, if you’re going for that.

One of the annoying aspects about HSAs in the past has been the nature of the banks that administer them. They’re usually hastily-put-together institutions that have terrible user experiences and restrictive policies on your ability to invest your HSA funds. Fortunately, Fidelity has burst onto the scene and now has a no-brainer HSA offering that beats the rest hands down. My first step was to rollover all of my previous HSAs into a new one at Fidelity.

Once all my funds were consolidated, the next question was how I was going to set up the HSA for future growth. Originally I was hoping that one of the robo-advisors (like Betterment or Wealthfront) would step up with an offering, but in lieu of that I decided to roll up my sleeves and construct my own lightweight portfolio of low-cost diversified index funds.

There is no one perfect portfolio for everyone, but there are plenty of simple guides to craft one appropriate for your age and risk tolerance. For me, I wanted to go with a 70-30 stock-bond split four-fund portfolio with exposure to both U.S. and international markets in equal measure. After some more research into what options specifically at Fidelity were best for this, I ended up with this mix:

Asset ClassFundETF variantAllocation
Total U.S. stock market indexFZROXITOT35%
Total international stock indexFZILX or FTIHXIXUS35%
Total U.S. bond indexFXNAXAGG15%
Total international bond indexFBIIXIAGG15%
Suggestions for a portfolio designed for 70% stocks and 30% bonds

Because HSAs are tax-advantaged, I didn’t actually need the tax efficiencies of ETFs – I just took note of them in case I need to build a similar portfolio in an taxable brokerage account later. For the HSA, I decided to stick with the funds since they had lower expense ratios. In fact, the Fidelity ZERO funds (FZROX and FZILX) really do have an expense ratio of 0.00%, which I appreciate.

What’s the difference between FZILX and FTIHX? Well, FZILX has a zero expense ratio but doesn’t cover the long tail of international equities, so FTIHX is technically more diversified. I felt I had enough coverage in this asset class considering my other retirement accounts, so I decided to keep it cheap and went with FZILX here.

Why international bonds as opposed to REITs or small cap equities for my fourth fund? Just personal preference – I’m generally quite conservative and have a… history with real estate as an investment vehicle.

Fidelity let me purchase by the dollar (fractional shares FTW) so I was able to use 100% of my HSA balance to invest in this portfolio. Now I just have to come back every quarter to do a little rebalancing if needed, or every year to make continued contributions.

Current holdings inside the HSA
Current holdings inside the HSA

What do you think? Please keep in mind I’m not a financial planner or fiduciary of any kind, nor do I often write about personal finance. If you’re looking for more tips about money, I would recommend:

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