What Is Direct Indexing?

May 9, 2023

If you’re searching for an investment option that lets you strategically pay less in taxes while maintaining your equity market participation, consider direct indexing.  

Research suggests that there’s a good chance your current advisor does not offer direct indexing. Luckily, Credent Wealth Management is among the 14% that do.  

What is direct indexing? 

Direct indexing is an investment solution for those tired of dealing with taxes and seeking to overcome the limitations of most other investment vehicles. One form of direct indexing is replication, as in replicating an index (like the S&P 500) by purchasing all individual stocks of the index (Stock 1 to Stock 500). Direct indexing tends to replace mutual funds and ETFs, offering similar market returns with added tax benefits. 

Mutual funds and ETFs attempt to simplify investing, but what you gain in simplicity, you lose in strategy. With the help of an advisor, direct indexing can be simple while offering notable benefits. 

How does direct indexing benefit you?  

There are a variety of upsides, but overall, direct indexing helps you invest more intentionally, with an eye toward your tax bill.  

Through tax-loss harvesting and planned charitable giving from your portfolio, you can experience tax savings, capturing benefits that would otherwise go untouched in an ETF or mutual fund.  

For example, with tax-loss harvesting, we strategically sell an asset at a loss. This asset could be one of the stocks in your direct indexing portfolio. When we sell, we realize the taxable impact of the loss and offset the gains you made on other assets. If you offset the money you’ve made, you have less to be taxed on. We then replace the asset we sold with something similar. 

Does your current advisor help manage your taxes? If not, who can you work with to implement this strategy?  

It makes sense to partner with a firm that has not only mastered direct indexing but also understands you and your financial goals. At Credent, we always strive for what’s best for you and your future.  

The in-house experts on our Investment Management Team maintain our entire investment platform. This affords us agility, diligence, and excellence in how we approach your portfolio.  

If you have any questions about direct indexing or would like any more information or clarification, do not hesitate to reach out to us or email [email protected] 

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