Automatic Investment Contributions – What is a Sweep?
Are you making regular contributions to your HSA and considering repeating investments as well? If so, you may want to set up a “sweep” investment, or automatic investment. This is a regularly recurring (repeating)transfer from the checking account (or cash) portion of your HSA to the HSA investment account – with investments automatically going into the mutual funds you’ve elected, in percentages you’ve specified.
A sweep makes it easier to manage and contribute to your HSA investment account. Sweeps can also allow you to take advantage of market fluctuations over time. While no one can accurately predict market cycles with precision, making regular contributions to the investment account allows you to take advantage of "dollar cost averaging."
Dollar cost averaging is a strategy that ensures an overall favorable average share price over long periods of time. It uses an investment technique that involves buying into the market at a consistent dollar value on a regular schedule regardless of share price. If you think markets (and share prices) will increase over time, this can be an effective strategy for building your investment account balance.
For example, if you have $500 to invest and put it into the market all at one time, you have locked in a single price. If, however, you take that same $500 and split it into smaller $100 investments over 5 months, you decrease your market risk since you are buying into the market at varying prices. While your account balance may be higher or lower than if you had made a single investment, dollar cost averaging helps you ride out highs and lows by spreading your investments over long periods of time.
Ready to set up automated investing for your HSA? You can easily elect this feature in your HSA investment account. Just look for the “Recurring Trade” button when choosing your investments, and turn it on if you’d like the trade to repeat. You can also set a “Sweep Reserve” – which allows you to leave a specific dollar amount in the cash portion of your HSA, above the $1,000 which is automatically reserved as cash in your HSA.
Contact a financial professional with questions about dollar cost averaging and the advantages of regular investments into the market.