A health savings account is one way for individuals to save for their retirement and medical expenses with tax-free contributions. These accounts are designed to mimic individual retirement accounts because unused funds will roll over to the next year and can be used for retirement after age 65. HSAs are attractive because of the tax incentives. But some HSA investment options include high fees, says Shobin Uralil, co-founder of Lively, a San Francisco-based HSA provider, who encourages investors to look for low fee and cost ratio options like exchange-traded funds to increase growth opportunities. Here are seven funds that could be a good asset to add to an HSA.
Vanguard 500 Index Fund (VFINX)
A mutual fund or ETF that tracks the S&P 500 (.SPX), such as Vanguard's VFINX (VFINX), is a good addition because the index tracks about 80 percent of the investable market capitalization of the U.S. stock market. The fund falls into Morningstar's large-blend category, representing a large-cap stock holding. The fund's top holdings are in Apple (AAPL), Microsoft Corp. (MSFT), Amazon.com (AMZN), Facebook (FB) and Johnson & Johnson (JNJ). As of November 2018, the fund held assets totaling almost $455.2 billion in 516 different holdings. The fund's expense ratio is 0.14 percent, and the minimum initial investment is $3,000.
Legg Mason Low Volatility High Dividend ETF (LVHD)
LVHD tracks the investment results of the QS Low Volatility High Dividend Index. The underlying index is composed of equity securities of U.S. companies with a relatively high yield and low price and earnings volatility. Investors use LVHD to help manage emotional decisions when the market is volatile, says Tim Gilligan, head of wealth management ETF sales at Legg Mason, an investment management company headquartered in Baltimore. Since its inception, this ETF has produced 20 percent less volatility than the S&P 500, he says. Other investors include LVHD in their assets to add balance and diversification to a portfolio for more risky or growth assets, such as technology stocks.
Western Asset Total Return ETF (WBND)
As an ETF that aims to maximize total return, WBND is consistent with prudent investment management and liquidity needs. Under normal market conditions, the fund will seek its investment objective by investing at least 80 percent of its assets in a portfolio comprised of fixed income securities, debt instruments, derivatives, equity securities, nonconvertible preferred securities, warrants, cash and cash equivalents, foreign currencies and ETFs. This is another diversifier to stocks, as WBND offers broad exposure to a pool of different bond and risk exposures, Gilligan says. "Diversification remains one of the few free lunches in investing," he adds.
Invesco FTSE RAFI US 1000 ETF (PRF)
The Invesco FTSE RAFI US 1000 ETF seeks to track the investment results of the FTSE RAFI US 1000 Index with at least 90 percent of its total assets in common stocks in this index. The FTSE RAFE US 1000 is composed of 1,000 common stocks and tracks the performance of the largest U.S. companies based on the following four fundamental measures: book value, cash flow, sales and dividends. "This is a four-star Morningstar-rated ETF on the whole stock market," says Ron McCoy, CEO of Freedom Capital Advisors in Clermont, Florida. "It has a lot of names in the portfolio that people would want in a bull market."
VanEck Vectors Gold Miners ETF (GDX)
As a fund that seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index, GDX invests at least 80 percent of its total assets in common stocks and depository receipts of companies in the gold mining industry. Gold is a good asset to have in a defensive portfolio, says Patrick Morris, senior managing director at Hagin Investment Management. "Gold prices are likely to rise when equities are declining," he says. "In periods of serious global uncertainty, gold is viewed as an alternative liquid asset that always has value and is uncorrelated to the stock market."
Lord Abbett Short Duration Income Fund (LALDX)
LALDX (LALDX) is a fund that invests in a variety of short-maturity debt securities that includes corporate bonds, U.S. government securities, mortgage and other asset-backed debt securities. The dividend yield is 3.87 percent without a sales charge. "Investors flow to U.S. Treasurys when the global outlook is negative and there is concern about growth," Morris says. "People pivot to Treasurys because it's one of the lowest risk assets they can find, plus there is no duration risk."
PGIM Jennison Natural Resources Fund (PGNAX)
The PGIM Jennison Natural Resources Fund (PGNAX) invests at least 80 percent of investable assets in equity and equity-related securities of natural resource companies and in asset-based securities. "This is a solid fund," Morris says. "Energy prices are not at the bottom, nor at the top and right now – it's a fairly conservative entry point for energy." If global growth continues to expand, then an increase in demand will drive oil prices up, he adds.
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