What is Direct Index Investing?
How companies like Plenty are pulling the curtains back on methods that were traditionally only offered to the wealthy.
Who: Investors who desire more customization and tax loss harvesting.
Special offer from Emily at the bottom!
Imagine you're investing your money in the stock market. Typically, people buy shares of mutual funds or exchange-traded funds (ETFs) to gain exposure to a broad range of stocks. These funds are managed by professionals who make investment decisions on your behalf. However, direct indexing investing takes a slightly different approach.
Direct indexing allows you to build a personalized portfolio of stocks that mimics a specific market index, like the S&P 500. Instead of buying shares in a mutual fund or ETF, you buy individual stocks directly. This means you become the owner of the actual shares of different companies. It's like handpicking the companies you want to invest in and creating your own customized fund.
One of the main advantages of direct indexing is the ability to personalize your investments. Let's say you have some strong beliefs about certain companies or industries. With direct indexing, you can exclude or include specific stocks based on your preferences. For example, if you're big on renewable energy, you can invest in companies that focus on that sector.
Another benefit is tax efficiency. Since you own the individual stocks, you have more control over when to realize gains or losses. This can be advantageous for tax planning purposes. For instance, if you have a stock with unrealized losses, you can strategically sell it to offset any gains in your portfolio, potentially reducing your overall tax liability.
Direct indexing offers greater customization and the potential for better tax outcomes. It's worth noting that direct indexing may not be suitable for everyone, especially those who prefer a more hands-off approach to investing or have limited knowledge of the stock market.
That’s where companies like Plenty, started by Emily Luk, can come in and help. For more info, check out their article. They focus on partner-based financial planning. They even gave us a special offer: if you use this link, you can get $25,000 managed for free!