Direct Indexing

[frayne]

Just curious if many here are doing it and your thoughts and experience so far. Seems like a neat financial instrument to cull out the poor performers of any said index, while actually owning shares of the respective index, to include fractional shares as well. I'll admit to being a bit behind the curve as I'm just now learning about direct indexing.

 

[euro]

Maybe I'm misunderstanding, but if you try to cull "the losers" from an index, then how are you still "indexing"?

 

[frayne]

Maybe I'm misunderstanding, but if you try to cull "the losers" from an index, then how are you still "indexing"?

From my understanding you can modify the index as you see fit, in essence you are correct, it isn't a true index fund in the conventional sense. Say you don't like how the particular index fund weights a certain stock/stocks, you can adjust to your liking.

 

[yakers]

It must work for someone. The three big drivers I can think of: better tax loss harvesting, people for moral reasons want to delete certain stocks, and maybe adjust for the risk covered by ones employment, say someone in the tech or banking sector would like to lower those sectors.
downsides include must be more expensive and once you are holding a particular custom fund it would likely be difficult to ever move it to another brokerage.

 

[Koolau]

Unfortunately I spent several years proving to myself that I have no knack for picking winners and losers which is why I went to index funds. I'm sure there are some folks here who can be successful at choosing stocks, but I'm not one of them though YMMV.