Until recently, customized portfolios were only available to high net worth individuals. But, this is now changing due to the advent of direct indexing which is giving these tools to a much wider swathe of investors according to an article from Michelle Lodge.
Direct indexing allows investors to have more control over their money while still allowing them to benefit from the positives of indexing such as diversification, tax efficiency, and low costs. This will allow their investments to better reflect their life situations, values, and convictions.
It’s particularly useful for those with outsized exposure to a company or an industry or those with a large base of taxable assets. For instance, a tech employee with a large number of shares and stock options could use direct indexing to purchase the S&P 500 but reduce exposure to technology stocks.
According to BlackDiamond Wealth CIO Ken Nutall, “We have two main use cases: clients who have an old portfolio of appreciated assets but want to migrate to another strategy of tax efficiently, or [those who] work at a bank and don’t want any more bank exposure in their portfolio.”
Finsum: Direct indexing is one of the fastest growing areas of wealth management. It gives investors the benefits of index investing, while allowing customization to help clients achieve their financial goals..