Unlocking the Power of Direct Indexing

Have you wondered how to enhance tax efficiency, gain more control over a portfolio, or how can we unwind a concentrated holding?

Direct Indexing may be the answer.

What is Direct Indexing?

• Definition – Direct Indexing involves purchasing individual stocks that mirror the composition of an index, replicating its weight.
• Autonomy – Unlike traditional index funds or ETFs, direct indexing has the potential to empower the investor to tailor portfolios to their specific preferences.
• Tax Advantages – tax-loss harvesting opportunities are more applicable as not all individual stocks move positively or negatively with the mirrored index.

Why use Direct Indexing?

• Tax Efficiency – harvest losses, defer gains and optimize tax outcomes.
• Control – tailor holdings, sector weights, and client’s investment alignments with their values

Who might be most beneficial?

• Business Owners—if you foresee a large capital event in the future (e.g., selling a business), direct indexing may allow you to invest cash to track an index while accumulating losses in the years leading up to the large capital event.
• Diversification—for high-net-worth individuals who already hold mutual funds and ETFs, diversification could be a tax strategy to offset some of the capital gains that are distributed through these funds.
• Unwinding Positions—whether it is your company stock or a stock that has performed well over the years with a low-cost basis, by combining that stock and cash into direct indexing, over time, losses can be captured to offset some of the gains in selling the low-cost basis appreciated stock.

If you have questions about direct indexing or if a client comes to mind, please feel free to reach us at 678-989-0048 or www.striblingwhalen.com.

Regards,

An investment in these strategies is subject to market risk, and an investor may experience loss of principal. Investments that utilize a direct indexing strategy carry specific risks that investors should consider before implementing a direct indexing strategy. In certain market conditions, direct indexing investment strategies may lose value or underperform passive strategies. Direct indexing strategies have the risk of not closely tracking the performance of the underlying index they seek to replicate. While these strategies are designed to track an index, passive investments often do not consider a company’s profitability, financial health, or growth potential in their investment selection criteria. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters. You should discuss tax or legal matters with the appropriate professional.