{"id":222693,"date":"2025-04-24T12:04:24","date_gmt":"2025-04-24T16:04:24","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?post_type=glossary-terms&#038;p=222693"},"modified":"2025-04-24T15:47:51","modified_gmt":"2025-04-24T19:47:51","slug":"direct-indexing","status":"publish","type":"glossary-terms","link":"https:\/\/www.interactivebrokers.com\/campus\/glossary-terms\/direct-indexing\/","title":{"rendered":"Direct Indexing"},"content":{"rendered":"\n<p><strong>Direct indexing<\/strong> is an investment strategy where an investor <strong>buys individual stocks<\/strong> that replicate the performance of a broad market index, rather than investing in a mutual fund or exchange-traded fund (ETF) that tracks the index. This approach allows for <strong>greater customization and tax efficiency<\/strong>, particularly in taxable investment accounts.<\/p>\n\n\n\n<p>Direct indexing enables investors to <strong>own the underlying securities<\/strong> of an index, such as the S&amp;P 500, directly in their portfolio. This provides flexibility to <strong>exclude specific companies or sectors<\/strong>, apply <strong>personalized investment preferences<\/strong> (e.g., ESG criteria), and\u2014most notably\u2014perform <strong>tax loss harvesting<\/strong> at the individual stock level. For instance, if one stock in the index has declined in value while the overall index remains stable or grows, the investor can sell that stock to realize a tax loss, while still maintaining the general market exposure.<\/p>\n\n\n\n<p>Direct indexing is made more accessible through advances in <strong>fractional share trading<\/strong> and <strong>automated portfolio management<\/strong>, allowing even smaller investors to efficiently track indices. It offers a way to potentially generate <strong>tax alpha<\/strong> by maximizing tax loss harvesting opportunities and optimizing after-tax returns, all while retaining exposure to the desired market benchmark.<\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Direct indexing is an investment strategy where an investor buys individual stocks that replicate the performance of a broad market index, rather than investing in a mutual fund or exchange-traded fund (ETF) that tracks the index. 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