What is Direct Indexing

Direct indexing has emerged as a compelling alternative for investors seeking more control, customization, and potentially higher after-tax returns on their investments. While traditional vehicles like mutual funds and exchange-traded funds (ETFs) offer diversification, low costs, and simplicity, they often come with limitations in terms of personalization and tax efficiency. Direct indexing, on the other hand, flips the script by allowing investors to own individual stocks directly tailored to their preferences and financial goals.

What is Direct Indexing?

Direct Indexing allows the investor to own individual stocks in an account that is managed to track an index (for example, the S&P 500). The goal is to use a representative sample of the index to generate an index-like return without needing to hold all the underlying stocks within that index. The customization allows the investor to exclude certain stocks or sectors based on personal values or objectives. The tax efficiency comes from the ownership of individual securities, which allows for strategies like tax-loss harvesting, where securities are sold at a loss to offset capital gains taxes, or “banking” losses to carry forward to use at an opportune time, such as offsetting gains outside a portfolio, such as from the sale of investment property, a business, or any other large capital gain. This is the power of direct indexing.

The visual below is from our free guide below, and briefly highlights the steps in direct indexing.

What is Direct Indexing Steps

Direct Indexing: Key Takeaways

It’s essential to recognize that direct indexing isn’t without its challenges. Constructing and managing a diversified portfolio of individual stocks requires time, research, and ongoing monitoring. Additionally, investors may face higher transaction costs associated with buying and selling multiple securities.  Improvements in technology, custody and securities trading have made this a far more competitive solution than ever before.

Direct Indexing is a powerful custom investment strategy that can meet the many needs of investors based on their individual preferences and investment goals. Direct indexing is becoming increasingly popular, especially among investors who seek more control over their investment portfolios and those with specific tax considerations.

In conclusion, direct indexing represents a promising avenue for investors looking to take a more hands-on approach to their portfolios. With its emphasis on customization, tax efficiency, and potential cost savings, direct indexing offers a compelling alternative to traditional investment vehicles. As the investment landscape continues to evolve, direct indexing stands out as a powerful tool for those seeking to optimize their financial futures.

To learn more about direct indexing, read our brief 2-page guide below, where we highlight a few important aspects, such as:

  • The Benefits
  • Concentrated Stock Positions
  • Sale of Investment Property, Business, or any other Large Capital Gain
  • Dividend Control
  • Values Alignment
  • Charitable Giving

 

View our FREE Direct Indexing 2-Page Guide Click Here
What is Direct Indexing

 


 

To determine whether Direct Indexing would be beneficial for you, contact an Asset Strategy Advisor today!

Asset Strategy can provide personalized advice tailored to your circumstances.

Call us or schedule a meeting with an Advisor today!

Contact us at 781-235-4426 or visit https://assetstrategy.com/contact/

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Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.

Advisory Services are offered through Asset Strategy Advisors, LLC (ASA), an-SEC Registered Investment Advisor. Securities offered through registered representatives of Concorde Investment Services, LLC (CIS), member of FINRA/SIPC. Insurance Services offered through Asset Strategy Financial Group, Inc. (ASFG). ASA, CIS, and ASFG are independent of each other.

This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice regarding your particular situation.

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