Direct Indexing is a fairly new investment approach. It primarily aims to circumvent the cost associated with third-party funds. As the name implies direct indexing buys directly individual stocks and bonds and commodity ETFs. But the resulting implications of holding a portfolio of individual securities are even more relevant:
- Dividends and coupons are paid instantly instead of receiving only quarterly or yearly fund pay-outs. The ability to reinvesting those cash payments earlier can have a significant positive impact, especially if compounded over many years.
- The greater number of positions in your portfolio means that tax loss harvesting can be applied highly efficiently. Reducing your tax burden to possibly zero.
- In a customized portfolio, the investor can exclude certain names altogether, say for ethical reasons. Portfolio weights can be adjusted according to volatility instead of the usual market capitalization. Allocating less capital to more volatile stocks in order to reduce the portfolio’s overall volatility.
Herges Capital does apply direct indexing to harvest above advantages. Direct investment necessitates a selection process when composing that diversified stock, bond or commodity ETF portfolio. This blog shares some of our ideas and philosophy in connection with concrete examples.
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Often an initial step for investors is to trustfully forward their latest broker’s statement for us to comment on. Common are also requests to recommend funds out of a 401k program. In both cases fees and sufficient diversification guides our reply.