Excess Returns, Ep. 41: Is Direct Indexing the Future of Investing?

Technology has allowed all of us to personalize many aspects of our lives. Rather than accept products tailored to a wide range of people, we are now able to customize products we use based on our specific needs and preferences. But in the world of investing, most investors continue to invest in prepackaged indexes like the S&P 500 that are the same for everyone. That may be about to change, though. The combination of new technology, the elimination of brokerage commissions, and the ability of investors to purchase partial shares of individual securities have come together to create a product that allows investors to build indexes that meet their individual preferences.

That product is direct indexing.

In this episode we talk about the pros and cons of direct indexing and the details of how it works. We discuss:

The potential tax benefits of owning the individual stocks within an index instead of an index fund;
The double edged sword of personalization;
The behind the scenes details that are important to understand when looking at direct indexing strategies.

We hope you enjoy the discussion.