How direct indexing could work for you

How direct indexing could work for you

Take advantage of an investment strategy that only institutional or ultra-wealthy investors had access to in the past. Increase the after-tax return of your investment portfolio. Create your own index fund to invest in what matters to you. It’s tempting to dismiss these marketing claims as hyperbole, except that they come from some of the most well-known and respected names in the investment world, including Fidelity, Schwab and even Burton Malkiel, author of the classic investment. A random walk down Wall Street.

The fanfare speaks of a controversial trend: A growing number of investment firms are now offering Main Street investors a strategy called “custom” or “direct” indexing that typically requires buying and trading stocks directly, imitation of an index. Investment firms and advisors have long offered this strategy to the wealthy for an annual management fee that often amounts to more than 1% of portfolio value. But now, activated by commission-free trading, smart supercomputer programs and the ability to buy fractional shares, at least three companies – Fidelity, Schwab and Wealthfront – are repackaging the service for cost-conscious index investors. The new offerings let you get started with custom indexing with portfolios as small as $1, for fees ranging from $4.99 per month to 0.4% per year (see table below).

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