Investors are increasingly wanting to customize their portfolios in a way that aligns with their values. And if it can be done in a way that could lead to a reduced tax bill? Even better. That’s where a direct indexing account can help.
Direct indexing accounts are customizable separate accounts in which the investor owns securities that make up an index. But unlike an ETF or mutual fund, direct indexing accounts can include or exclude securities from the chosen index.
A service like Vanguard Personalized Indexing offers screens and tilts to add securities that reflect the investor’s personal values. Screens can eliminate certain companies, sectors, or industries from the portfolio (like guns, or drugs). Meanwhile, tilts can add preferential weight to securities not in an index (like firms that manufacture guns, or drugs).
VPI offers a range of screens and tilts to allow investors to customize their portfolios. Advisors can also request custom options on their client’s behalf. Once investors select their options, advisors can generate impact and performance reports on demand. That way, their clients can have a clearer picture of the impact of their customizations.
Additionally, VPI can automatically scan the portfolio for potential tax-loss harvesting opportunities at set frequencies.
Vanguard CEO Tim Buckley said at Exchange 2023 that the company will “be investing heavily” in direct indexing. More information about VPI can be found online.
For more news, information, and analysis, visit the Direct Indexing Channel.