Benefits of Direct Indexing

Direct indexing is an investment strategy where individual stocks that make up an index, like the S&P 500, are held directly in your account, instead of using a mutual fund or an ETF like the SPY. Similar to an index fund, the goal is to track the performance of a target benchmark index. However, holding the underlying equities in an index directly confers benefits not available through mutual funds or ETFs.

Benefits of Direct Indexing

Tax Efficiency

First, if any one stock or sector, loses value, any capital loss is immediately available, and can be used to lower your tax bill as opposed to a fund, where net capital losses from managing the portfolio are trapped within the fund and not distributed to investors. Second, pushing capital gains into a future tax year may help improve after-tax returns.

Tax Alpha

Tax loss harvesting on a direct indexing portfolio can potentially equate to an additional 1-3% in annualized after-tax returns. This is because even during times of strong market performance, many stocks are down at some point over the year, increasing the opportunity for tax loss harvesting.1 1 Chaudhuri, Lo 2020; Vanguard

Concentrated Positions

Direct indexing can help you diversify legacy positions with embedded gains. By building an index around your existing holdings and to add diversification without increasing exposure to existing large positions. You can also use a tax budget to reduce concentrated positions with full control over your tax bill. Finally, harvested tax losses can accelerate the liquidation of concentrated positions while staying within your optimal tax budget.

Personalization & Savings

Invest with your values. With Direct Indexing, you can personalize your portfolio and save on fees.

Include / Exclude Securities

Add or remove individual stocks from your direct indexed portfolio.

Value Based Screens

Choose stocks based on ESG issues, like tobacco, fossil fuels, and private prisons. We can build a direct index that aligns with your values.

Vote on Proxies

You can participate in proxy voting for companies held in a direct indexed portfolio.

Reducing Fees

Avoid paying ongoing management fees to the asset management company who runs the ETFs or the mutual fund company.

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Benefits of Direct Indexing