Direct indexing as a strategy for tax loss harvesting is gaining popularity among investors as the year comes to a close. Tax loss harvesting involves selling securities that have incurred a loss in order to reduce taxable income. Direct indexing allows financial advisors to conveniently make these trades without disrupting the client’s entire portfolio. It is an effective way to achieve tax savings for clients.
Previously, direct indexing was mostly limited to affluent investors with at least $1 million to invest. However, advancements in technology and the advent of zero- or low-commission trading have made direct indexing more accessible to a wider range of investors. This strategy involves buying individual stocks directly instead of investing through a fund, which enhances the ability to tax loss harvest. As a result of these developments, more people can now utilize direct indexing.
By embracing the potential of direct indexing and tax loss harvesting, financial advisors can demonstrate their value to clients. As the concept becomes more accessible, it presents an opportune moment for advisors to introduce direct indexing to their clients and provide valuable tax-saving advice. This strategy not only helps reduce taxable income but also showcases the advisor’s expertise in navigating the complexities of the financial market.
