Direct Indexing

Custom Portfolios, Enhanced by Direct Indexing

We are always looking for opportunities to customize our clients’ portfolios to more effectively address their unique financial goals, values, and risk tolerances. We believe direct indexing is a highly effective solution for some of our investors to do just that and more.   

Unlike mutual funds and ETF’s, direct indexing allows us to build investment portfolios comprised of individual securities that closely replicate a market index, such as the S&P 500. This gives us control over the timing of individual trades and enables us to manage capital gains more efficiently, while also closely tracking the returns of that specific index. 

This personalized approach enhances tax efficiency, allows for more customization, and reduces cost. 

Tax Efficiency

Direct indexing can be especially useful when strategizing tax efficiency. Some of these benefits being:  

Increased Investment Personalization

Direct indexing provides personalized investment options, catering to your individual needs, values, and preferences. Unlike standard index funds or ETFs, it allows investors to overweight or avoid specific sectors or companies, enhancing transparency by displaying the exact stocks owned. This flexibility is particularly useful for aligning investment decisions with environmental, social, or governance values. 

Multi-Generational Wealth & Legacy Planning

Direct indexing potentially reduces or eliminates capital gains taxes for your heirs. Your heirs receive a step-up in basis on the assets in your direct index portfolio. This means that the cost basis used for calculating tax for inherited assets, is adjusted to their market value upon your passing.  

Is Direct Indexing for You?

Direct indexing isn’t for everyone. This strategy is ideal for the following:

High‑Net‑Worth Individuals

Direct indexing is especially advantageous if you have a significant amount of money in taxable accounts. If this applies to you, direct indexing can provide significant tax efficiency benefits, offsetting capital gains and minimizing tax liability over time.

Long‑Term Investors

If you plan to hold your investments for an extended period, possibly passing them on as part of your legacy, direct indexing’s customization and effectiveness can help grow and preserve intergenerational wealth.

Socially Concerned Investors

Aligning your investments with your personal social or ethical standing is possible with direct indexing’s precise customization. You can exclude companies that don’t align with your values while still enjoying the benefits of broader market exposure.

Qualifying for Direct Indexing

To qualify for direct indexing, ideally you have $5 million or more in assets under management, of which $1 million or more are in taxable accounts.

At Whelan Financial, we offer you direct indexing as part of our personal wealth management services at no additional fee.