If you’ve ever felt that mutual funds and ETFs don’t give you enough control over the individual stocks you want to invest in — or don’t want to invest in — you’re not alone.
Clients over the years have shared with us that they want to own individual stocks. However, one of the hidden benefits of owning individual stocks are the after-tax returns generated through tax-loss harvesting. You may ask, “why are we hearing about this now?” Well, the reality is the technology did not exist.
The Freedom of Custom Indexing
We have good news: with the addition of Warren Street’s new custom indexing platform, you now have the ability to “custom index” — in other words, set the parameters on the exact types of stocks you’d like to invest your money.
Unlike ETFs and mutual funds that only offer pre-packaged asset mixes, custom indexing lets you personalize your investments to your individual values, preferences, and goals. Custom indexes are implemented through separately managed accounts (SMA), which allow you to directly own a mix of individual securities rather than indirectly owning positions through shares of funds and ETFs.
This can be an especially helpful option for individuals who may want to:
- Reduce concentrated stock risk (e.g., employer stock)
- Custom-build a portfolio to support ESG stocks
- Offset embedded gains with cash or tradable securities
- Invest in an individual stock portfolio with factor tilt
If custom indexing is a good fit for you, your advisor will discuss your goals, preferences, risk tolerance, and tax positioning. Then, he or she will help you design your custom portfolio from scratch, based on considerations such as asset allocation, factors, tax-loss harvesting, and values-based screens.
Ideal Clients for Custom Indexing
While custom indexing offers you some great advantages in selecting individual stocks, it only really benefits clients that meet certain account levels and qualifications, due to tax and expense considerations.
Ideal clients for custom indexing generally include those with:
- At least $500,000 in a taxable, non-retirement account
- Recurring cash contributions
- A high-income tax bracket (Fed/State)
- Preferred individual stock exposure over funds
Through direct indexing, custom indexing can replicate broad market exposure by investing in the underlying positions of an index fund or ETF. This helps us efficiently manage your taxes (if you meet the above qualifications) and gives you virtually infinite portfolio customization capabilities.
Interested in learning more? For a full deep-dive into our custom indexing platform, check out the attachment linked below. And feel free to reach out to your lead advisor if you think you might be a good fit!
Founder and Wealth Advisor, Warren Street Wealth Advisors
Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.