Are You Direct Indexing? A look beyond mutual funds and ETFs
The financial industry has seen incredible technological innovation in recent years. Despite this innovation, most advisers continue to rely on layers of management rather than leveraging technology for the benefit of their clients.
Direct indexing is an investment methodology that has historically only been available to the ultra-wealthy. Thanks to advances in technology paired with super low commission costs, direct indexing is now far more accessible.
What is Direct Indexing?
Direct indexing is a strategy that seeks to replicate the positions of an index by purchasing the underlying individual equities instead of using an ETF or mutual fund. There are three main advantages to utilizing direct indexing:
1. remove a layer of management, which may reduce costs
2. tailor a portfolio specifically to a specific investor's income and tax situation
3. tax management strategies, such as deferring gains and loss harvesting are far more effective than with funds
In a world where asset management and investment advice have become commoditized, implementation efficiency offers investors a potential advantage - especially in passive, index-based strategies. Direct indexing eliminates a layer of middlemen, reducing costs while providing unique advantages.
If you are not using direct indexing or are paying more than .35% for investment advice give me a call.
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