The financial industry is witnessing a significant shift—investors are demanding more control, customization, and tax efficiency than ever before. Direct indexing is quickly becoming the go-to solution for meeting these demands. But what’s fueling its rise?
- Personalization – Unlike ETFs and mutual funds, direct indexing enables investors to own the individual stocks within an index. This allows them to exclude certain companies or industries that don’t align with their values, such as tobacco or fossil fuels, and overweight those that do.
- Tax Efficiency – One of the biggest advantages of direct indexing is tax-loss harvesting. Investors can systematically sell underperforming stocks within their portfolio to offset capital gains, helping to lower their overall tax bill more effectively than ETFs.
- Fractional Shares & Technology – Previously, direct indexing required significant capital to properly replicate an index. However, the rise of fractional share trading and sophisticated automation platforms now allow investors to implement direct indexing strategies at much lower entry points.
With these benefits, it’s no surprise that direct indexing is projected to outpace ETFs in growth over the next decade. Advisors and investors alike are recognizing that this approach offers flexibility and tax advantages unmatched by traditional investment vehicles.
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