The investment menu offered in health savings accounts (HSAs) need to include equities, multi-asset classes and fixed income, according to Devenir’s white paper, “Best Practices: HSA Investments & Menu Design.” It would also be good for them to include emerging markets equities, target-date funds, alternatives, international bonds and specialty bonds, the research firm says.
“Quality of investments is an aspect of HSA investments that is highly relevant to investor success,” Devenir says. It is important to measure a fund’s performance relative to its peers and to analyze its risk-adjusted return in order to filter out funds that take excessive risk. It is also important to study funds’ costs. “Investors should be instructed to review fund prospectuses before investing, to be fully aware of the possible fees associated with the investment,” Devenir says.HSA sponsors must monitor funds’ performance on an ongoing basis and remove underperforming funds from the menu. Sponsors may also consider offering a brokerage window, so that participants can invest in stocks, bonds and exchange-traded funds (ETFs).