The event was held on October 9, 2018.
- Look at the past 10 years and discover how time in the market, not market timing, can make a big difference
- See how our funds performed
- Watch an insightful Q&A session with our Investment Research Team
The event was held on October 9, 2018.
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:
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
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:
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.
Learn what Tom Putnam has to say about the current environment in response to investors who may be tempted to try to time the market:
Although we are opportunistic when mainstream investors are fearful and there is a downturn, I think it is helpful to reiterate to you our mantra of “stay the course.” We have heard concerns about matters such as the presidential election and possible rising interest rates, and some have asked if it is a good time to be invested. I would like to reinforce a study we highlighted recently on what panicky investors have cost themselves. Read more.
Dollar-cost averaging, investing a fixed dollar amount on a regular schedule, takes the emotion out of investing and can keep an investor from panicking and doing the wrong thing at the wrong time. The idea behind dollar-cost averaging is to average out the highs and lows instead of trying to time your investments. It allows you to focus on long-term growth and not be swayed by short-term marked conditions.
Dollar-Cost Averaging Disclosure
Dollar-cost averaging does not guarantee a profit or protect against a loss in declining markets. The idea is to average out the highs and lows to help you avoid trying to time your investments. It allows you to focus on long-term growth and ignore short-term market conditions.
The basic premise of dollar-cost averaging is that over time, the average cost of your mutual fund shares may be lower than the average market price of the funds over the time period that you are investing. While this technique does not eliminate the chances of your losing money on an investment, losses can be limited during periods of declining fund share prices and profits may be enhanced during rising fund share prices. Dollar-cost averaging is a plan of continuous investment in securities regardless of fluctuating prices, an investor must consider his or her financial ability to continue purchases through periods of low price levels. There is no assurance that any strategy will be successful in achieving investment objectives.
by Tom Putnam
I am an avid reader. I enjoy perusing books and newspapers, but I mostly read vast amounts of investment research. A good movie can interest me as well, but I am not a big fan of television. Maybe it is because for part of my life there were only a handful of channels. It was an adventure just to change the station and adjust the signal with our flimsy “rabbit ears” antenna, and decent picture quality was a moving target. Today, there are hundreds of channels with crystal-clear reception; however, the programming is often not as sharp as the picture. This includes some of the 24/7 cable financial news shows which, I believe, can cause investors to get sidetracked at times.
Many financial pundits cast their opinions with certainty, and yet they are typically speculating. These commentators will guess what the stock market will do next, predict what will happen globally, amplify macro events, and tell you when to buy and sell investments. Of course, they each have their own slant on topics. Multiply these conflicting viewpoints by thousands online and you can easily get whipped into a tizzy and lose focus of your long-term financial goals.
Steady Investing in an Ever-Changing World
We always welcome your calls, especially when you may feel a bit nervous. Our team is here to help you maintain a rational, long-term outlook. Recently, we have heard questions like, “Have I missed the stock market rise? Am I too late to add money or open a new account?” Others have asked, “Will we see a major pullback soon?” While there are numerous different speculative answers to these questions, there is one concrete investment practice that many find agreeable – dollar-cost averaging (DCA). DCA takes the guesswork out of investing.
If you contribute methodically through a payroll deduction into your 401(k) or 403(b)(7), you are already implementing this practice. DCA is a long-term strategy that involves investing a fixed-dollar amount into your FAM Funds mutual fund (for example) at regular intervals. Since you always invest the same amount, you will purchase more shares when the price is low and fewer shares when the price is high. DCA’s premise is that your average cost per share may be less than your average price per share, thus reducing your investment risk over an extended time.
Instead of investing a lump sum, the idea is to average out the highs and lows to help you avoid trying to determine the right time to invest. It also allows for smaller investments that, when done consistently over time, can grow into a considerable savings. It takes advantage of the cyclical nature of the stock market and allows you to focus on long-term growth and ignore short-term market conditions. While this technique does not eliminate the possibility of losing money on an investment, losses may be lowered during periods of declining share prices and profits may be enhanced when prices rise over time.
When you need the money, DCA is also an efficient way to withdraw funds. The advantages are similar to when you were investing because money is withdrawn automatically regardless of share prices – you do not have to concern yourself with fluctuations.
More than 100 years of stock market history highlights the fact that rallies occur when investors least expect them. Trying to time the market simply does not work over the long haul. It is important to remain patient and calm when attempting to grow your assets − and dollar-cost averaging can help.
People often look back and believe that events were predictable. While our memories may mislead us, the truth is that the future is never certain. The world is ever-changing and I would be leery of anyone who presumes to postulate with certainty. At FAM Funds we are not in the business of speculating. What I can tell you with assurance is that we will continue to seek to purchase shares of stock in high-quality, durable businesses at attractive prices to outpace inflation and build real, long-term wealth.
Many of you have been with us for a long period of time and understand the importance of steady investing, including those of you who became shareholders in 1987 when we launched the FAM Value Fund. We appreciate your support of the Value Fund as well as the FAM Equity-Income and FAM Small Cap Funds. As of its two-year anniversary on March 1st, the Small Cap Fund already had more than $50 million in assets. As always, we encourage you to please contact us with any questions or concerns. On behalf of our team, I thank you for your ongoing trust.