“If volatility continues, it can provide opportunities to invest in quality enterprises – that meet our criteria – at a discount. This is key as we seek to continually enhance the Fund’s holdings while preserving and growing your wealth over the long term.” — John D. Fox, CFA, CIO
Fenimore’s time-tested investment approach is consistent, straightforward, and understandable. We want our investors to be educated and confident in knowing what they own and why. This includes having access to the professionals managing your money.
Each year, employees are spending more and more from their paychecks on health insurance premiums. With these cost increases, we have seen many employers offer a High-Deductible Health Plan (HDHP) as a health insurance option for employees. This has grown the popularity of Health Savings Accounts (HSAs). However, an HSA can offer much more than just an interest-bearing account to help cover out-of-pocket medical costs. It should be considered as a very good long-term vehicle to cover future medical expenses.
First of all, an HSA is only offered in conjunction with an HDHP. Typically, you are eligible to enroll in one if you have opted for an HDHP as your plan-type during open enrollment for health insurance with your employer.
Automatic payroll deductions present an excellent way of forced savings into these accounts and offer a triple-tax advantage:
- Tax deduction
- Tax-deferred growth
- Tax-free withdrawal if used for medical expenses
For 2018, a person enrolled in individual coverage may contribute up to $3,450 whereas a person with family coverage may contribute up to $6,900. Additionally, if you are older than age 55, you may make an additional $1,000 catch-up contribution per spouse.
Some Additional Benefits
- Participants in an HSA are typically provided with a card linked to the account which allows you to pay for qualified medical expenses with ease
- HSAs may serve as a good option for higher income earners that max out their qualified retirement plans through work and are still looking for a tax deduction
- Funds not used in the account remain there and are continuously rolled over each year until they are used (unlike Flexible Spending Accounts)
- Check with your plan’s trustee, but investment options may include stocks, bonds, and mutual funds as opposed to simply an interest-bearing account
The Forest Through The Trees
Too often we are short-term thinkers, but the long-term advantages of HSAs should not be overlooked. Consider the fact that many of us will live roughly a third of our lives in retirement so it is important to consider potential healthcare costs during those golden years. For example, estimates of average medical expenses for a healthy 65-year-old couple range from $225,000 to $275,000.
If an individual or family is able to contribute significantly each year into their plan and build up a considerable savings in their account, this can be a great option to help cover some of the following costs both tax- and penalty-free:
- Long-Term Care Insurance Premiums: probably one of the most overlooked advantages (policy needs to be qualified per IRS standards)
- Medicare Parts B, C (Medicare Advantage Plans), and Part D (Prescription Drug Coverage)
- Orthodontics: any parent who has paid for a child’s braces knows that they are not cheap and not covered by traditional dental coverage
- Some over-the-counter medical items such as insulin, reading glasses, contact lenses, and wheelchairs (items that the IRS considers qualified medical expenses)
Any withdrawals from an HSA that are not used specifically for qualified medical expenses may be hit with a 20% penalty and subject to income tax. Once you turn 65 and begin receiving Medicare, you are no longer eligible to contribute to an HSA; however, there are no required minimum distributions and funds will remain in the plan until spent down.
Additionally, it is good to check with the trustee of your HSA to review your investment options. Remember, with our life expectancies lengthening, our medical expenses will follow suit. HSAs can provide an excellent way to alleviate some of these future medical costs in a tax-efficient manner. As always, I recommend including your accountant or tax preparer in the decision.
In summary, an HSA should be on your radar as much as your 401(k) and other employer-sponsored plans because it can be a terrific savings account to cover both current and future medical expenses.
For more information and “light reading” on HSAs, the IRS offers Publication 969.
“Having a strong foundation gives us the confidence to stick to our time-tested process during volatile times. When the stock market dips and investors may sell out of fear, Fenimore’s team gets excited about the possibility of buying stock in quality businesses at bargain prices. I realize we state this fact often, so, with volatility in the headlines again, it is a good time to look more closely at the heart of the matter. As value investors, the key as to why market drops can provide opportunity is understanding price versus value.” Read More.
Regarding the FAM Value Fund the article states, “It deserves to be better known, most especially by equity investors looking for a committed team, a value-sensitive strategy and a long, consistent record.” READ NOW
Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Please consider a fund’s investment objectives, risks, charges and expenses carefully before investing.
Fund selection was determined by the subjective criteria of the author. No objective criteria for selection (e.g.; performance returns, manager tenure, expense ratio, etc.) were evaluated for identification of these funds. Consequently, other mutual funds not identified in the article or considered by the author may have similar characteristics.
The views herein are provided for informational purposes only and are not otherwise intended as an offer to sell, or the solicitation of an offer to purchase, any security or other financial instrument. This summary is not advice, a recommendation or an offer to enter into any transaction with Fenimore or any of their affiliated funds.
All projections, forecasts and estimates of returns and other “forward-looking” information not purely historical in nature are based on assumptions, which are unlikely to be consistent with, and may differ materially from, actual events or conditions. Such forward-looking information only illustrates hypothetical results under certain assumptions and does not reflect actual investment results and is not a guarantee of future results. Actual results will vary with each use and over time, and the variations may be material. Nothing herein should be construed as an investment recommendation or as legal, tax, investment or accounting advice.
These materials are not intended to be complete or to constitute all of the information necessary to evaluate adequately the consequences of investing in any securities or other financial instruments described herein. Investors should ensure that they obtain all available relevant information before making any investment. Any investment entails a risk of loss. An investor could lose all or substantially all of his or her investment. Past performance is not an indicator of future results.
Drew Wilson, Co-Manager of FAM Value Fund, discusses the “wealth effect” in an interview. The wealth effect is the notion that changes in consumer asset values (e.g. home, investment portfolio) affect a person’s confidence and willingness to spend.