A health savings account (HSA) is one of the best ways to save on taxes. You don't pay taxes on contributions, get to grow your portfolio tax-free, and don't even have to pay taxes on withdrawals if they are used for qualified medical expenses.
Although this account offers many advantages, you can only maximize these perks by boosting your HSA returns. Higher returns translate into more money that isn't taxed if it is used for the right expenses. These are the three strategies you can use to enhance your gains.
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1. Review your funds
Investors can choose from thousands of mutual funds and exchange-traded funds (ETFs). If you have the benefit of having longer investment timeframes ahead of you, then you should focus on funds that can deliver higher returns. A bit of risk-taking can go a long way as your returns compound over time. In other words, if you do not need the money for at least another five years, it's good to focus on growth-oriented funds.
While it's good to check a fund's performance and review its assets, some people forget about the expense ratio. This percentage reflects the fund's annual cost. You don't see the money slip out of your bank account, but it is taken from the fund's value.
Many passively managed funds that follow benchmarks have expense ratios below 0.1%. However, some funds have expense ratios above 0.5%, resulting in investors losing a lot of money in fees over the long run.
2. Invest in growth stocks
Investing in good ETFs is sufficient for most investors, but doing some market research and picking a few growth stocks can lead to higher returns. In any index like the S&P 500, there are a few stocks that outperform the rest.
The "Magnificent Seven" stocks have a long history of beating the S&P 500 and offer a good starting point. Some investors decide to do more digging and look for mid-cap stocks that offer more promise.
It's up to you how deep you go down the rabbit hole. Investors who take the time to hunt for opportunities can end up crushing the stock market, but it's not for everyone.
3. Focus on the long run
It's common for investors to get rattled when the stock market loses value over an extended period. Corrections can feel like crashes and cause people to panic-sell at the wrong time.
Before selling any stock or fund, it's important to ask yourself if the fundamentals have changed. Some growth stocks could drop by as much as 30% in a month, even if their fundamentals have improved during that period. A stock or fund with deteriorating fundamentals is more concerning, but corrections are a normal and healthy part of the stock market.
Invest in stocks and funds that you feel comfortable buying and holding over the next decade. Then, stick to that plan unless core elements of those assets change. A media frenzy about a stock market correction shouldn't be enough to make you part ways with your investments.
