How should I allocate my HSA investments?

I have $20,000 in my HSA. We pay common Medical bills out of pocket. I currently have $4,000 of this amount invested {20%} in Vanguard Funds, 70% Stock/30% Bond. I can't really find any info on the web pertaining to HSA Investment Allocation. What do you recommend, should I invest conservatively? I'm 62 years old, my wife is 55 and we max our contributions each year.

Financial Planning, Investing
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4 days ago
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Congratulations on accumulating that much money in your HSA!  That will be of great benefit to you in retirement.  Since you said you have $4,000 invested in Vanguard Funds, I assume you mean the other $16,000 is in cash?  If so, then you have roughly $3,000 in stocks, $1,000 in bonds and $16,000 in cash.  The stocks are about 15% of total portfolio.  HSAs by design are meant to be used at any time - whenever a large medical expense pops up.  

You may already know this, but I want to mention that after you reach age 65, you can use the HSA money for anything and not be subject to the 20% penalty, but you will have to pay income tax on the amount you withdraw that is not used to pay for qualified medical expenses.  So it is best to continue to allocate the money to medical expenses, but you do have some options after age 65.

As with any investment account, you need to look at your investment time horizon, your risk tolerance, your other available assets and more in determining how to allocate investable cash.  I would look to see how much needs to be available this year - to do that you would need to look at your deductable.  If it is $6,500, for example, then consider keeping $6,500 in cash or very safe bonds such as T-bills.  You don't want this account to lose purchasing power by leaving it in cash or cash equivalents, but at the same time you don't want to be too aggressive since you could need most or all of the money in the next few years should you have major medical bills.  

It is hard to give you a proposed allocation because I would want to know your situation, your medical spending history, your other cash resources, your risk tolerance, etc.  Given the little information you gave us, perhaps $5,000 in T-bills and then invest the other $15,000 40% stocks/equities and 60% bonds.  Be sure to diversify your stocks and bonds, and consider focusing on dividend-rich equities to provide income.  

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