Direct indexing, increasingly popular among investors, particularly benefits those with concentrated company stock positions by allowing them to replicate index performance while retaining control over individual securities. 

This strategy, once reserved for the ultra-wealthy, has become accessible and affordable for investors at all levels due to recent technological advancements. Through customization based on preferences and goals, direct indexing offers diversification and risk management, crucial for those with concentrated stock holdings. 

Tax efficiency through strategies like tax-loss harvesting further enhances its appeal, maximizing future value potential for investors. With its ability to reduce risk and enhance performance, direct indexing presents a compelling option for investors looking to protect and grow their assets.

Finsum: It used to be infeasible to use direct indexing, but technology improvements are giving smaller investors the edges in tax and diversification that was reserved for the ultra wealthy.

Boston-based wealth management firm NDVR has introduced a cutting-edge solution allowing financial advisors to efficiently manage and optimize client portfolios. The updated NDVR Portfolio Lab streamlines portfolio construction and management, catering to RIAs, family offices, and high-net-worth individuals. 

Through advanced technology, advisors can tailor investment strategies and asset allocations to meet each client's unique needs and goals, while also providing outcome forecasting for more personalized portfolio adjustments. The platform's household wealth optimization feature enables the creation of diversified portfolios across various account types with automatic deployment, alongside capabilities for optimizing tax-advantaged account distributions and providing actionable insights through "what-if" scenarios. 

NDVR offers a range of strategies, including custom indexing and tax-advantaged fixed income solutions, aiming to empower advisors to enhance client outcomes and foster long-term relationships with innovative portfolio solutions.

Finsum: Tailoring solutions that meet clients’ needs will allow for better portfolio optimization and construction.

Human capital is the ability to use your skills and experience to generate income. Younger people have ample time to improve their human capital and earn paychecks to fund their lifestyle. However, as we age, the time and opportunities we have to develop and utilize our human capital decline.

People know that if they suffer an investment loss early in their career, they can make up for that loss by working longer or searching for a higher-paying job. Yet, this ability decreases as we near retirement. Whether we realize it or not, declining human capital makes us less risk-tolerant with our financial capital.

For retirees, most, if not all, of their income must come from their portfolio rather than paychecks, which often causes them to be overly protective of their financial capital and invest it more conservatively than they need to.

One solution to helping them take more investment risk while still feeling that their financial capital is protected is a fixed indexed annuity. These products typically provide downside protection, a steady income, and participation in a portion of the market gains of the underlying equity index.

Finsum: As human capital decreases, investors become more protective of their financial assets, but that doesn’t mean they can’t participate in equity growth. Find out how in this article.

Growth has consistently outperformed value since the Great Recession. For a while, this was attributed to the Fed’s dovish policies, however this has now continued even during this period of substantially higher rates. 

There are some indications that investors should consider rebalancing between value and growth to maintain diversification, since they may be overexposed following growth’s significant outperformance over the past year. In reality, the opposite is happening as inflows are heavily skewed towards technology. 

Over the past year, net inflows into technology ETFs amounted to $18 billion which is nearly equivalent to net outflows in all other sector ETFs. This is also exacerbated by the massive size of the largest 7 technology companies which have become dominant in market-cap weighted indices. 

Another reason to consider value is that it would likely outperform in adverse market conditions given lower multiples and less froth. This could be a prudent choice for investors who are on the sidelines but wary of risks like a recession or inflation. 

Additionally, value tends to do well following periods of froth in markets. For instance, value outperformed in the years following the bursting of the dotcom bubble and the frenzy in equity markets during the pandemic. If valuations revert to the mean, then it could also set the stage for a value renaissance. During these periods, the best performing stocks tend to produce high levels of free cash flow relative to their market caps while maintaining strong balance sheets. 

Finsum: Value underperformed growth by a significant degree over the past year, continuing the prevailing trend of the last decade. Here’s why investors should consider increasing exposure to value ETFs. 

Emerging market bonds are offering a compelling opportunity for investors to lock in attractive yields while also having the potential for price appreciation. While there are many ways for investors to get exposure, the Vanguard Emerging Markets Government Bond ETF (VWOB) is one of the most liquid and diversified options. It currently pays a yield of 6.8% with an expense ratio of 0.20% and tracks the Bloomberg USD Emerging Markets Government RIC Capped Index.

Investing in emerging markets certainly means more risk due to lower credit quality, however the fundamentals are supportive of continued strong performance in 2024, while macro trends are favorable. JPMorgan estimates that emerging market economies will expand 3.9% this year, outpacing the 2.9% growth rate of developed market economies. It sees lower inflationary pressures due to weaker commodity prices which means that emerging market central banks should be able to cut rates, generating a tailwind for emerging market debt.  

In 2023, emerging market bonds were up 11%. JPMorgan is forecasting that the category should also have double-digit returns in 2024. It believes the major risk to this outlook is inflation not falling as expected which limits the ability of central banks to cut rates, especially since the market has already priced in modest easing. 

Finsum: Emerging market debt has major upside for 2024 due to attractive yields, strong fundamentals, and expectations that interest rates will be lowered.