Last week’s question and answer

Josephine Esther Mentzer founded me in 1946 in New York City, selling her uncle’s skin creams in beauty shops and beach clubs. My success was built on her high standards. I sell my products in more than 100 countries under brand names such as Aramis, Clinique, Prescriptives, Origins, M…A…C, La Mer, Bobbi Brown, Tommy Hilfiger, Donna Karan, Aveda, Stila, Jo Malone, Bumble and bumble, Gloss.com, kate spade beauty, Darphin, Michael Kors Fragrances and Rodan + Fields. In 1953, my “Youth-Dew” was the first bath oil that doubled as a perfume. I raked in $5 billion in 2003. Who am I?

(Answer: Estee Lauder)

HSAs can ease medical costs

Congress has passed many laws dealing with the payment of medical expenses. After creating health reimbursement accounts (HRAs) and flexible spending accounts (FSAs), it recently created health savings accounts (HSAs).

HSAs are designed somewhat like IRAs. In effect, you can put away tax-sheltered dollars that can be used to pay out-of-pocket medical expenses, such as your doctor visit co-pays or other medical expenses not otherwise covered by your insurance.

HSAs primarily help those with high-deductible medical insurance policies. When medical bills not covered by your insurance come due, you pay with funds from your HSA until your insurance finally kicks in. The great thing is that contributions to an HSA are tax deductible, and distributions taken to pay qualified medical bills aren’t taxed to you, either.

Not everybody can have an HSA. There are two primary restrictions: the amount of your contribution and your health insurance coverage. Every year you can contribute the lesser of your insurance deductible or an amount set by law to an HSA. For 2004, those amounts are $2,600 for singles and $5,150 for family coverage. You also need to be covered by a high-deductible health plan — $1,000 for singles and $2,000 for families.

Additionally, you can’t be covered by Medicare or any other health insurance plan except plans that cover long-term care, dental, vision and certain other medical costs. Finally, you must be younger than 65 to open an HSA.

Unlike FSAs and HRAs, HSAs are not dependent on an employer. They’re portable, so you can take them from job to job. Additionally, you can accumulate funds in your HSA and invest those funds. And the investment earnings aren’t taxed.

To set up an HSA once you’re sure you qualify and have learned the rest of the rules, contact your favorite reputable financial services firm such as a bank. Not all such firms offer HSAs yet, but many do.

Remember that HSA accounts weren’t intended for investing in the market. They’re meant to help you cover health care costs. So make sure your funds are invested safely and conservatively.

Learn more at www.ustreas.gov/offices/public-affairs/hsa.

Don’t dwell on sunk costs

If I bought a stock when its price was too high, what should I do now? — A.M., Richmond, Va.

A critical financial concept to understand is that of the “sunk cost.” Whatever you paid for various stocks is important when you want to calculate your gain or loss, but in many other ways, those prices are irrelevant.

Imagine that you bought shares of Global Telepathic Messaging (ticker: ESPME) for $88 each when the stock was near its all-time high. If the shares are selling for $36 each now, that’s the price you really need to think about as you determine what to do. The $88 has been paid, it’s in the past, and there’s nothing you can do about it. You need to figure out whether you expect the stock to appreciate from here, and by how much. If you think the stock isn’t even worth $36 per share, you might want to sell. If you think it will double within a few years, hanging on might be best, unless you’re aware of other stocks that you expect to grow faster.

Your money should be invested in your best ideas. As Vinay Kumar, a member of our vast discussion board community at http://boards.fool.com, advised: “Don’t stubbornly hold onto Cisco or Yahoo or anything else because you can’t fetch your original purchase price. Don’t sell it just because it’s down so much. And certainly don’t buy it just because it’s worth so much less than its 52-week high. Evaluate each stock on how it looks today.”

What does “capex” mean? — B.B., Bay City, Mich.

It’s short for “capital expense,” and it refers to a firm’s cost of buying or upgrading physical assets such as buildings.

Sold eBay too soon

I bought 40 shares of eBay for $35 each soon after they debuted. My broker told me the stock was too volatile and to stay away from it, but I bought in anyway. I had been selling stuff on eBay for more than two years and really believed in the company. My shares went up, and then down, and then my broker’s assistant advised me to “get out while you can.” I wanted to hang on, but caved in under pressure and sold my shares for $85 each. That wasn’t too bad, as I more than doubled my money. But within weeks, eBay shares skyrocketed to $326 per share. — Jonnie Lee, via e-mail

The Fool Responds: Those shares did surge, but they were cut in half by late 2000, recovering nicely after that. Many faint-hearted investors sold at low prices. Your broker was right to suggest that newly minted stocks tend to be volatile. It can be smart to get out once you’ve earned as much as you aimed to — though if your research suggests there’s a lot of growth left, hanging on may pay off.

Maytag’s stroke of genius

Appliance maker Maytag (NYSE: MYG) has hit upon a new strategy for reassuring customers and driving sales. It’s actually a new variation on a very old strategy: “Try before you buy.”

Aiming to outflank its archrivals, Whirlpool and General Electric, Maytag is opening 40 eponymous stores across the country — and plans to expand to more than triple that number during the next two years.

At each of these stores, customers will have the opportunity to wash and dry a load of laundry or to bring in a load of greasy pans and have them scrubbed in a Maytag dishwasher — right before the customers’ eyes.

The stores also will feature Maytag’s Hoover, Amana and Jenn-Air products.

The company reportedly has been testing out this concept for several years at a limited number of locations, and it is turning out to be a success, with 70 percent of customers coming into the store carrying out a new appliance when they leave. Think about how often you wander into an appliance store and make a purchase right then and there, and that 70 percent closure rate will probably look pretty significant.

Maytag seems to be making a smart investment here — and one that may pay off well for its investors. Other retailers, such as Sears, Best Buy and Costco, may want to consider this approach.