Harness Full Portfolio Control Using Direct Indexing

Regardless of the product, consumers are more apt to make a purchase when they’re presented with alternatives. The same goes for investments, which is where direct indexing can harness full portfolio control to give investors customizability.

Direct indexing allows for portfolio construction that essentially mimics the holdings within an index. It can also allow investors to also tailor their exposure to suit their investment style. For example, while they can handpick stocks found in the S&P 500, they can adjust their level of exposure based on their own personal preferences.

This is beneficial for investors who want to tilt their portfolios toward environmental, social, and governance (ESG) exposure. Big tech names like Amazon and Microsoft hold high ESG ratings. So investors may want to allocate more capital to these names if ESG is their prime focus.

Another example is when incorporating factor investing into the mix. An investor looking to attain large-cap value can match the S&P 500 one-for-one, while another investor who wants to add more growth can do the same, but also allocate more toward small-cap growth names.

Direct indexing allows for matching an index. But there’s also a degree of customization that allows for more pliability in the market. Moreover, this can all be harnessed with direct indexing platforms like the Vanguard Personalized Indexing.

Harvest Losses to Minimize Taxes

The platform can also perform the heavy lifting regarding locating tax-loss harvesting opportunities. This strategy allows an investor to minimize capital gains by selling equities at a loss.

Vanguard’s direct indexing platform can automatically scan portfolios for tax-loss harvesting opportunities based on time frame parameters set by the user. This can can be monthly, quarterly, or even daily.

Tax-loss harvesting doesn’t have to be relegated to just high net worth individuals. All investors can take advantage of the strategy, but of course, they should consult their tax professional to confirm if it works for them or not.

“Regardless of market conditions or what stage of life you may find yourself in, there are always strategies to help optimize your taxes,” personal financial site Kiplinger said. “With tax-loss harvesting, you can sell low-performing securities and use that liquidation to offset any capital gains taxes, and by converting to Roth accounts, you spare yourself future tax liabilities that may come from any growth in value your securities may accrue.”

For more news, information, and analysis, visit the Direct Indexing Channel.