About HSA Investing

Key Takeaway

The average healthy couple, age 65, will incur over $200,000 in out-of-pocket medical expenses not covered by Medicare during their retirement years. A health savings account (HSA) is one of the best places to save for those expenses because money can be taken out tax-free for qualified expenses. At retirement, HSA dollars can be used for non-medical expenses too.

Long Term Investing

Many people use HSA pre-tax savings to pay for insurance deductibles and other eligible expenses during the same year the contributions were made. But withdrawing all HSA contributions means you have nothing left to invest for the long term.

An HSA’s primary use is paying for current, out-of-pocket expenses and deductibles in conjunction with a high-deductible health insurance plan. Best practice is to reserve enough cash in the account to cover the maximum out-of-pocket deductible for two consecutive years before any excess money is invested. Investments available are not guaranteed and can experience losses when the markets are not favorable.

Choosing Investments

The investment menu is like that of a typical retirement plan. There are many different mutual fund investment options available, representing the three primary asset classes: cash, bonds, and stock. The cash option is an FDIC insured, interest-bearing account. Several different bond funds seek to provide a higher fixed-income rate-of-return than a simple savings account but can lose money in certain circumstances. Bonds are typically much less risky than stock investments. Most of the mutual fund investment options available in an HSA are stock (equity) funds. Each represents a different type of stock market investment or philosophy to allow for broad diversification.


Other than the cash option, the investment options in an HSA are not intended to be used individually. Rather than selecting one investment option, it is prudent to maintain broad diversification by taking advantage of all the investment options available, according to a strategy that makes sense for you.

Additional Resources