Direct indexing as an investment strategy
Customized products and experiences are popular these days. Even in the case of stock investments, it’s now possible for investors to “customize” and personalize their own stock portfolios. This is known as direct indexing.
Direct indexing is the slightly more complex version of a mutual fund, index fund, or Exchange-Traded Fund (ETF). Direct indexing has benefits that are not present in the other kinds of funds. One of the benefits is that investors enjoy a lot more flexibility in choosing or managing the individual stocks in their portfolios with direct indexing.
In this article, know more about direct indexing and answers to questions like is direct indexing worth it, the benefits of direct indexing, direct indexing costs and other important insights.
Direct indexing is an investment strategy that was formerly reserved for more affluent investors. In the past, only those who had at least $1 million to invest could adopt this strategy, since direct indexing meant paying a lot in commissions and fees. Typically, this also meant buying the stocks in the same weights, so imagine the cost!
But now, thanks to online brokerage platforms (and many RIA custodians) that offer zero-commission trading, investors don’t have to be millionaires to do direct indexing. Investors with as little as $5,000 can mimic indexes like the S&P500 or the Russell 2000 via direct indexing.
Investors direct their financial advisors or investment managers to buy stocks that mirror an index (or multiple indices) that they choose, via separately managed accounts or SMAs. And instead of attempting to match the performance of a stock index by purchasing mutual funds or ETFs, investors only buy a small part of individual stocks to imitate the
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