Direct Indexing: A Personalized Approach to Investing

Direct Indexing: A Personalized Approach to Investing

The conventional wisdom in investing is to only invest in index funds. Why try to outsmart Wall Street when you can simply match the market's returns with an index fund? It's a solid strategy, and for many investors, it's the perfect approach.

But what if you want more control over your investments? What if you want to align your portfolio with your personal values or optimize your tax strategy? Traditional index funds can leave you feeling like a passenger, not the driver.

That's where direct indexing comes in. It offers all the benefits of passive investing with a key advantage: personalization. Think of it as index investing 2.0 – a way to customize your portfolio to achieve your unique financial goals. With it you can be as active or passive as you'd like - you are in control.

Direct Indexing 101?

Imagine building your own personal version of the S&P 500. That's the essence of direct indexing. Instead of buying an index fund that holds all 500 stocks in one bundle, you own each of those stocks individually.

Why would you want to do that? It's all about unlocking a level of customization and control that traditional index funds generally aren't able to offer. With direct indexing, you can:

• Maximize tax efficiency: When you own individual stocks, you can strategically sell losing positions to offset gains elsewhere in your portfolio, a technique known as tax-loss harvesting. This could possible significantly reduce your tax bill over time.
• Align your investments with your values: Don't want to invest in fossil fuel companies or certain industries? With direct indexing, you can exclude specific stocks from your personalized index.
• Fine-tune your portfolio: Want to overweight certain sectors or tilt towards specific factors like growth or value? Direct indexing gives you the flexibility to tailor your holdings to match your investment preferences.

In short, direct indexing takes the core principles of passive investing – tracking a benchmark index – and adds a layer of active management to help you achieve your specific financial goals.

How it works at Double

Direct Indexing on Double starts by choosing the strategy you’d like to Invest into. We have lots of prebuilt classic direct index strategies, and also factor and sector specific strategies. These strategies are closely related to and follow popular ETFs. You can see a description of the strategy and its specific holdings and backtested performance on our Strategy Detail pages - check out our flagship US 500 Strategy.

Once you select a strategy we provide users with the ability to Customize their specific version of it. Here is where Double really shines - we offer much more customizability and flexibility compared to ETF investing. You are able to both add and remove certain stocks and increase of decrease your exposure against certain stocks or sectors.

For example, let’s say you're a 40 year old working for a Healthcare company, and your husband works for Apple. Both of you receive stock from your employers, and this stock comprises about 40% of your combined net worth. If you just bought a public S&P 500 ETF, you would be buying more healthcare and Apple stock - even though you are already very exposed to this sector and company. With Double you are able to decrease your exposure to Healthcare by 20%, and entirely remove Apple from your holding.

Previously this type of customization was reserved for investors with 10s of millions of dollars of investable assets and

Is Direct Indexing right for everyone?

Direct indexing sounds amazing, right? But you might be wondering about a few things:

• Is my money safe? Absolutely. Double partners with Apex Clearing, a trusted custodian with decades of experience safeguarding assets for major brokerage firms like SoFi and WeBull. Your investments are secure, and you're free to transfer them to another brokerage whenever you like.
• What about trading costs? Double doesn't charge trading commissions, keeping your costs low. You'll only incur standard SEC and TAF fees, which most brokerages - including Robinhood - charge. Read more about Double Fees.
• Doesn't direct indexing require large minimums to get started with? Traditionally, yes. But Double makes direct indexing accessible with fractional shares, lowering the minimum investment to just $14,000 for our US 500 flagship portfolio.

Conclusion

Direct indexing offers a compelling alternative to traditional index investing, providing a unique blend of passive strategy and personalized control. By holding the individual stocks that make up an index, you unlock opportunities for tax optimization, values-based investing, and portfolio customization. While it's not a one-size-fits-all solution, direct indexing empowers investors to take a more active role in shaping their financial future. With platforms like Double making it more accessible than ever, direct indexing is no longer just for the ultra-wealthy. It's a smart strategy if you are seeking a truly personalized investment experience.