There’s a growing trend known as direct indexing, buying the stocks of an index, for goals like tax efficiency or values-based investing.
"People want a little more control over what they're investing in," said Michael Whitman, a CFP and managing partner at Millennium Planning in Pittsboro, North Carolina."And when you buy into a mutual fund or ETF, you're at the mercy of the manager."
Direct indexing generally works best for bigger portfolios because it may be costly to own an entire index. However, this barrier may shift as more brokers offer so-called fractional trading, allowing investors to buy partial shares., said Ken Nuttall, CFP and chief investment officer at BlackDiamond Wealth in Wilmington, Delaware.
For example, an Apple or Amazon executive may want to diversify by investing in an index without their company holdings. Direct indexing may allow them to cherry-pick their stocks, he said.
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