Recent market volatility has many investors swept up like Dorthy in the Wizard of Oz with no place to turn to, but Direct Indexing could be the ruby red slippers to take you home or at least mitigate some losses. Direct indexing is where investors own the underlying asset of an index, with a core advantage of being able to add/drop individual equities from their holdings. In these highly volatile times when the stock market and particularly subsectors like tech/crypto have taken a beating, investors can drop stocks because of taste or taxes. Rather than being stuck with the whole distribution of gains or losses you can leverage the failure of an asset by selling it off and for tax-loss harvesting. This generates additional alpha that a mutual fund can’t match, and while ETFs are fairly tax-efficient direct indexing is even more so.
Finsum: A small antidote to the volatility could be realizing some losses for those stocks that might not rebound right away.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
