Tax concepts//57s
Direct indexing versus owning the index fund.
An index fund is one holding at one price. Direct indexing means owning the companies inside it yourself, which makes it possible to harvest losses on individual stocks.
Transcript
This is how wealthy investors generate losses and still save on taxes. It is called direct indexing. Why is it different from a passive index fund?
In a passive index fund you are trading the fund at one value. It is at one hundred one day, it might go to ninety, it might go to one hundred ten. With direct indexing you own the individual companies inside the index.
That matters for a couple of reasons. You can generate tax losses or gains within the portfolio. Say Meta is down. You can sell Meta and buy another company inside the S&P 500, and that generates a loss. The passive fund does not do that, because it trades on its own price.
This lets you tax-strategize based on the given year, especially in down years, while keeping performance similar to the index.
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