Direct Indexing Portfolios

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Portside Wealth Group, an SEC registered investment adviser. Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.

Direct index investing is a personalized approach to investing that involves purchasing the individual stocks that make up an index, rather than buying shares of a mutual fund or an exchange-traded fund (ETF) that tracks the index. This method allows investors to directly own any specific shares in the underlying securities of the index, providing several advantages over traditional fund-based index investing.

One of the primary benefits of direct indexing is tax optimization. Investors can engage in tax-loss harvesting by selectively selling individual stocks inside the index that have lost value to offset gains from other investments. This strategy can help reduce an investor's overall tax liability, potentially increasing after-tax returns. Mutual funds and ETFs cannot offer this level of customization since they distribute gains and losses across all shareholders uniformly, regardless of individual circumstances.

Customization is another significant advantage of direct indexing. Investors can tailor their portfolios to align with personal preferences or ethical considerations. For example, one might exclude certain industries or companies that do not align with their values, such as those involved in fossil fuels or tobacco. This level of customization is not typically possible with mutual funds or ETFs, which follow the index composition rigidly.

Furthermore, direct indexing provides more control over capital gains. In mutual funds and ETFs, investors have limited control over when gains are realized, as these funds must periodically rebalance to match the index. Direct indexing allows investors to manage their portfolios more proactively, deciding when to buy or sell individual securities to optimize capital gains realization according to their financial plans.

Direct index investing offers substantial benefits, including tax optimization, portfolio customization, and enhanced control over capital gains. It is also considered a low-cost strategy that could allow for more money to stay invested and compound over time. These advantages make it an attractive option for investors seeking a more tailored and potentially more tax-efficient approach to index investing compared to traditional mutual funds and ETFs. If you are interested in learning more or discussing how this strategy fits into your financial plan, click the link below to schedule a meeting with our team.