While not new, direct indexing’s come a long way. Catch was, it primarily was a tool of larger investors in light of its cost and daunting technology, according to smartasset.com.

 

But with those hurdles easing, the site continued, the time might be right to contemplate a few things it brings to the table. For one thing, gains on stocks with an uptick in value can be deferred.

 

Another juicy nugget: tax efficiency, according to barrons.com. Direct indexing’s viewed by advisors as a potentially game changing tool for their firms. Powered by computer algorithms, with direct indexing, advisors can cherry pick sales of specific shares that have headed south in value.

 

“Tax-loss harvesting is incredibly important now and may be even more so if tax rates go higher,” noted Jim Hagedorn, managing partner at Chicago Partners. In 2019, the company began offering direct indexing.  

 

But there are catches.

 

For example, active management’s a prerequisite for direct investing portfolios while it’s mostly hands off with index mutual funds and ETFs or exchange traded funds, according to smartasset.com.  

 

And this: tracking performance can be tricky. Investors in ETF and mutual funds receive relatively easy to digest statements with a few ticker symbols to track. It’s not so simple with direct indexing. A statement might be rife with individual stocks, which could stretch into the hundreds, the site stated.