Mutual Funds on the Health Wallet: Managed, Tax-Free Investing for HSAs

An overview of mutual funds on the Health Wallet.

Next week, the Health Wallet team will release our newest feature for health savings account (HSA) investing: Mutual funds. This update comes as a result of listening to partner and member feedback after last year's release of the embedded HSA investing experience that supported exchange-traded funds (ETFs) and individual stocks.

"Adding mutual funds to our embedded investing experience is another example of how we're making benefits more effortless for everyone.”
- Izamar Loredo, Director of Product at First Dollar

With an HSA, individuals can contribute pre-tax funds, enjoy tax-free growth on investments, and withdraw tax-free for qualified medical expenses. Yet Morningstar's 2023 Health Savings Account Landscape found that a median of 18% of plan participants invest their HSA funds, even though HSAs offer more substantial tax benefits than 401(k)s, IRAs, and 529 plans. By adding mutual funds to the embedded investing experience, First Dollar is helping partners make HSA investing more accessible.

How to order mutual funds with the Health Wallet.

Mutual fund orders will take place within the Investments tab of the Health Wallet. Members simply select the preferred security, enter the desired amount, review order details, and confirm the purchase.

Members can buy and sell mutual funds in the Investments tab.

"Effortless" is probably not how many managers or administrators would describe benefits. But that's the Health Wallet team's goal, and they aim to do this in part with interfaces that expose core actions. This principle is true for the Investments tab, as members can buy, sell, or view their portfolio—all without signing in to another site.

“Investing can be confusing, but using an app doesn't have to be. We've minimized user confusion with interfaces that expose all core actions and intuitive experiences that stand on their own."
‍- Jeff Utzman, Senior Product Designer at First Dollar

Wait. What are mutual funds?

We're glad you asked. Mutual funds pool multiple investments to create a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds allow investors to participate in a broad range of assets without directly managing individual securities. 

It might be easier to fully grasp the unique nature of mutual funds by comparing it to other securities. For this exercise, we'll compare mutual funds with ETFs and individual stocks—all three securities available to Health Wallet users.

Table that highlights three supported investment options on the Health Wallet: ETFs, mutual funds, and stocks. ETFs are a basket of stocks designed to track an index or specific sector, mutual funds are a anaged portfolio of stocks, bonds, or other securities, and stocks offer ownership of an individual company.
ETFs, mutual funds, and stocks offer Health Wallet users three different investing strategies.

When evaluating ETFs, mutual funds, and stocks, members should consider the following:

  • Diversification. Buying stock in one company can be great if you have great faith in that company, but it also means putting your eggs in that company’s basket. Mutual funds offer diversification of your investment by pooling funds into investments into multiple securities. ETFs, like an index of the S&P 500, can offer diversification benefits as well, but it’s important to note that some ETFs, like an ETF with a focus on the gold sector, do not. 
  • Liquidity. When can you buy or sell a security? Mutual funds are priced at the end of each trading day, limiting when you can buy and sell them. ‍
  • Management. Professional fund managers manage mutual funds, which means they likely have a higher expense ratio (more costly), but it might also be reassuring that someone skilled is managing them.

How many mutual funds are supported today?

Today, 27 mutual funds are available to Health Wallet users. We plan to expand this list quarterly in collaboration with our partners, DriveWealth and Morningstar.

A listing of the 27 supported mutual funds on the Health Wallet.
The supported mutual funds are curated by Morningstar.

Mutual funds on the Health Wallet is made possible through collaboration.

Supporting mutual funds as an HSA investing option is made possible through collaboration with our partners DriveWealth and Morningstar. 

Powered by DriveWealth.

"Powering mutual fund investing for HSAs within Health Wallet is a great example of DriveWealth enabling an innovative partner to swiftly progress their investment concept from idea to reality. ”
- Stan Smith, Managing Director of DriveWealth

First Dollar's partnership with DriveWealth, a leading fintech whose “Brokerage as a Service” platform enables both digital-native and more established companies to deliver a range of financial services to their end clients, enabled First Dollar to embed the member experience within Health Wallet, ensuring users can access a diverse portfolio of ETFs, mutual funds, and stocks without entering another platform. With First Dollar's APIs and widgets, partners can embed the HSA investing experience inside their member portal for a truly embedded experience for their members.

Curated by Morningstar.

“Providing access to top-rated mutual funds for HSAs is another way Morningstar empowers investor success. We're excited about this next step in our collaboration with First Dollar to change how people use their HSAs.”
- Brock Johnson, president of Global Retirement and Workplace Solutions at Morningstar Investment Management. 

Like ETFs and stocks, Morningstar Investment Management curates all supported mutual funds through a similar approach to the one it uses to build investment menus and lineups for more than 21,000 retirement plans (as of June 30, 2022). This research-backed approach helps ensure account holders have access to the right mix of diversified asset classes based on their goals, with the knowledge that the narrowed investment options have passed Morningstar Investment Management's stringent screening for risk and return characteristics.

What’s next for the Health Wallet investing experience?

In 2024, the Health Wallet team will collaborate with DriveWealth to improve the HSA investing experience with two major initiatives: Automated Investing and Fund Discovery. Automated Investing will provide curated investment options based on a member's goals and risks, and Fund Discovery will enable members to quickly find desired investing options with filters for the industry sector, risk profile, and more. 

Disclosures

The Morningstar name and logo are registered marks of Morningstar, Inc. Morningstar Retirement is a group within Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. Opinions expressed are as of the current date; such opinions are subject to change without notice. Morningstar Investment Management shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses, or opinions or their use.

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