With direct indexing you hold the underlying stocks directly instead of a single fund. Even in an up year some stocks dip, and those can be harvested for tax losses while you keep the same market exposure.
See how it works through one simple example.
A normal index fund is one position, so you can only harvest a loss if the whole fund is down.
With direct indexing you own the individual stocks, so the inevitable losers can be sold for losses even when the index is up.
You collect a steady stream of tax losses while keeping the same overall market exposure.
Educational guidance, not tax advice. We confirm every figure and your eligibility before you act.
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The honest version.
You own the actual stocks in the index, so you can harvest losses on individual names.
It aims to match the index while adding tax losses, not to beat the market.
Larger taxable accounts where ongoing loss harvesting is worth the added cost.
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