Direct Indexing
Holding index components directly may create ongoing loss-harvesting opportunities and tax-aware customization beyond what a fund allows. Suitability depends on portfolio size and complexity.
At a glance
- Category
- Investment
- May be relevant for
- Larger taxable portfolios
- Our approach
- Document review → proposal → implementation
- Service area
- Nationwide (office in Westlake Village, CA)
Whether this applies to you depends on your specific facts and circumstances.
Ask a CPA about your situationImportant: This page is for educational purposes only. It describes how this strategy may work under current law. Whether it is appropriate for you, and how to implement it correctly, depends entirely on your specific facts, timing, and documentation. This is not individualized tax advice. Speak with a licensed CPA before acting.
How it may work
Direct Indexing — a plain-English overview
The sections below describe how this strategy works under current tax law, what conditions may make it applicable, and what factors affect the outcome.
What direct indexing is
Direct indexing is a separately managed account (SMA) strategy in which an investor directly owns individual securities that approximate a market index (such as the S&P 500 or Russell 1000), rather than buying an index fund. Because the investor owns each security individually, they can selectively sell positions with losses to harvest those losses — even in rising markets — while maintaining approximate index exposure by replacing sold positions with similar securities.
Why it may produce more harvesting opportunities than a fund
An index fund is a single position that can only be harvested if the entire fund is in a loss position. Direct indexing allows harvesting of individual securities that are temporarily below purchase price, even while the overall index is positive. In a diversified index with 500 components, individual securities may be down while the index is up. This may create more consistent tax-loss opportunities over time.
Customization and exclusions
Direct indexing also allows factor tilts, ESG exclusions, and avoidance of specific securities — for example, excluding a security in which the investor has a concentrated position (to avoid adding to concentration). This level of control is not available inside a fund.
Suitability and minimums
Direct indexing platforms (including offerings available through custodians like Schwab) typically require a minimum account size — generally starting at $100,000–$250,000 for basic implementations, and higher for more sophisticated strategies. At smaller account sizes, the cost of management and trading may exceed the tax benefit. Suitability is assessed through Total Wealth Services, the affiliated RIA, which manages the investment side of the client relationship.
Document-first
What we'd review before recommending this strategy
We do not guess. We review the documents, propose, and implement. Here is what we'd want to see to evaluate whether this strategy may apply to you.
- Taxable account size — minimum thresholds vary by platform and strategy
- Current gain and loss profile in the taxable portfolio
- Existing concentrated positions — to design around them
- Investment objectives and ESG preferences — if applicable
- State tax rates — the value of harvesting is partially a function of the rate at which losses reduce tax
- Coordination with Total Wealth Services — investment decisions are managed by the RIA
Who this may fit
Profiles where this strategy comes up most
These are the client situations where we most commonly evaluate this strategy. Whether it applies to you depends on your specific facts.
Common Questions
Questions about Direct Indexing
Educational answers to questions we often hear when discussing this strategy with clients.
Is direct indexing the same as a separately managed account?
A directly indexed portfolio is a type of separately managed account. Not all SMAs use direct indexing — some SMAs hold a small number of individual securities based on active management. Direct indexing specifically refers to the strategy of holding the components of an index individually.
Educational content only
This page describes Direct Indexing for general educational purposes under current tax law. It is not individualized tax, legal, or investment advice. Whether this strategy is appropriate for you — and how it should be structured, documented, and reported — depends entirely on your specific facts, timing, and circumstances. Tax law changes frequently. Always consult a licensed CPA before acting on any information here.
We do not guess. We review the documents, propose, and implement.
Ask a CPA
Wondering if Direct Indexing applies to you?
Tell us about your situation and we'll follow up within one business day. We review the actual documents and give you a direct answer — no obligation.
- Document-first review — we start with your actual returns and records
- Clear explanation of what may apply and why
- No obligation — honest if there isn't enough value to act on
Explore more
Other Investment strategies
Tax-Loss Harvesting
Taxable investors
Realizing losses to offset gains may reduce current tax, subject to wash-sale rules. How much it helps depends on portfolio size, volatility, and your gain profile — no outcome is guaranteed.
Options Overlays
Concentrated stock holders
Collars and covered calls may help manage risk around a concentrated position when suitability fits. These are nuanced strategies that depend on your goals, basis, and risk tolerance.
Ready to find out what applies to your situation?
A discovery call is how we start. We review the documents and tell you honestly what may be worth pursuing.