Direct Indexing
ULTRA-TAILORED · TAX-AWARE
Complete customization and effortless tax optimization — a personalized portfolio tax-managed to keep more of what you earn.
Complete customization and tax efficiency
FOR INVESTORS WITH LARGE CAPITAL GAINS
Direct indexing owns the individual stocks of an index in your own account — instead of a single ETF or mutual fund. Because you hold the names directly, gains and losses can be harvested at the single-stock level, and the portfolio can be tailored to your values, your existing holdings, and your tax profile.
Done well, that discipline can add "tax alpha" — after-tax outperformance from automated tax-loss harvesting. (Tax alpha: after-tax outperformance generated through tax-loss harvesting — realizing losses to offset gains elsewhere, tailored to your tax profile and real-time market conditions. The realized benefit depends on your bracket, cash flows, market volatility, and time horizon; it is not a guaranteed return.)
It makes the biggest difference for investors in high-tax states, for diversifying concentrated stock, and for gifting appreciated lots into a donor-advised fund. We offer it two ways — the personalized index itself, and the advanced strategy that goes further.
IMPACT Direct Indexing
Direct Indexing — "Customization + tax alpha"
Own the individual stocks of your index in a personalized account — customized to your values and tax-managed to keep more of what you earn.
- Own the stocks, not the fund — harvest losses at the single-name level
- Your values and factor tilts built into portfolio construction
- Gift appreciated lots into a donor-advised fund
- Automated rebalancing & tax-loss harvesting
Who direct indexing is for
Direct indexing is a long-term commitment to reap the compounding benefit of tax-loss harvesting — best for investors who will likely always have capital gains to write off. It makes the biggest difference for:
- Investors in high-tax states (California's top rate tops 33%) with meaningful taxable-account holdings
- Concentrated-stock holders who want to diversify gradually and tax-efficiently
- Charitably inclined investors who gift appreciated lots into a donor-advised fund
It is not for everyone: for younger investors just starting to build wealth, or those whose holdings are mostly in IRAs and 401(k)s, low-cost ETFs often make more sense.
IMPACT Amplified℠ (TALS) — the advanced next step
Advanced — "Greater pretax and after-tax alpha"
Go further: by also shorting lower-quality companies, tax-aware long/short (TALS) strategies can seek greater outperformance — pretax and after-tax.
- Loss harvesting at far greater scale
- Tax deferral that dwarfs direct indexing
- Access to best-of-breed TALS SMAs & hedge funds
- À la carte or integrated with full-service wealth management
Beyond direct indexing: Direct indexing is an established way to deliver tax alpha through tax-loss harvesting. Tax-aware long/short (TALS) strategies pursue higher outperformance — pretax and after-tax — while generating loss harvesting at far greater scale. TALS is a more complex strategy able to deliver a level of tax deferral that dwarfs direct indexing. We offer it à la carte or integrated with comprehensive wealth management — see the full Tax-Aware Long/Short overview.
Your index, your way
NO-COMPROMISE INVESTING
- Power of choice: Diversify around your existing holdings and tilt toward the companies and values that matter to you — see personalized indexing for values-driven investors.
- Effortless tax optimization: Automated gain/loss realization tailored to your bracket and real-time market conditions, generating tax alpha.
- Without compromising performance: Track your index closely while customizing it — no giving up market exposure to express your preferences or harvest losses.
The case for direct indexing — in the press
Barron's, Dec. 2022: "Direct indexing is taking off — a long-term commitment to reap the compounding benefit of tax-loss harvesting, best for investors who will likely always have high capital gains to write off." — Jason Escamilla, ImpactAdvisor
ETF Report, March 2021 (The Indexing Issue): "For investors in high-tax states with taxable-account holdings, direct indexing allows much easier tax-loss harvesting — you can trim individual stock holdings rather than a basket of ETFs. 'You open up a wide range of tax opportunities,' he said, including moving appreciated holdings into donor-advised funds." — Jason Escamilla, ImpactAdvisor
ETF.com, September 2020: "There are two benefits to direct indexing: better customization and even greater tax efficiency. In a high-tax state such as California, direct indexing makes a big difference." — Jason Escamilla, ImpactAdvisor