The Basics of Direct Indexing
A common way to measure the performance of the stock market is by looking at market indexes, also referred to as benchmarks. The Dow Jones Industrial Average and the S 500 Index are two of the most widely recognized market benchmarks and, if you're looking to replicate their performance, investing in mutual funds and exchange-traded funds (ETFs) that mimic these indexes might suit your needs.
Alternatively, if you're seeking direct ownership of the securities that are held in the index, the flexibility to customize holdings and the potential for greater control over tax impacts, you could consider an investment strategy referred to as direct indexing. While this hybrid strategy contains elements of both passive and active investing, it also comes with its own unique risks.
Direct indexing offers investors a way to purchase many or all the stocks in a specified index, which can include holding hundreds of individual securities. In the past, this strategy was only available to individuals with over $1 million in liquid assets, often referred to as high net worth investors. However, advancements in technology and the rise of fractional share trading--which allows for the purchase of less than a full share of stock--have made this strategy more accessible to retail investors today.
Source Fool.com
