Investors Can Harvest Losses Even in Up Markets

Proponents of direct indexing services have been touting its tax-loss harvesting abilities for years. Direct indexing not only makes harvesting losses easy, but also offers this strategy even when the selected index is up.

Direct indexing accounts are designed to replicate the performance of an index of an investor’s choosing. But as its name suggests, with direct indexing, the investor directly owns the securities in the portfolio. That lets the investor customize, including and excluding holdings at their and their advisor’s discretion.

“Because investors directly own the individual securities in their direct indexing portfolios, you can harvest losses for them even in years when the index is up,” according to Vanguard. “You can use these losses to offset your clients’ capital gains, and help them keep more of what their portfolios earn.”

See more: “Tax Loss Harvesting Is No Longer Just for the Ultra Wealthy

Vanguard Personalized Indexing can automatically scan portfolios for tax-loss harvesting opportunities at a set frequency. That frequency can be monthly, quarterly, or even daily. VPI can also scan for opportunities across dozens of investments and hundreds of investment lots.

Growing in Popularity and Expected to Accelerate

Direct indexing is growing in popularity among investors, managing roughly $350 billion in assets in 2020. That’s more than triple the $100 billion in assets the strategy managed in 2015. And industry insiders expect that pace to accelerate, with direct indexing estimated manage $1.5 trillion in total assets by 2025.

Vanguard CEO Tim Buckley said at Exchange 2023 that the company will “be investing heavily” in direct indexing.

More information about Vanguard Personalized Indexing can be found online.

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