On this page
  1. What you get and what you pay
  2. Why 500 positions find more losses than one fund
  3. Who it fits
  4. Two things to know before signing
  5. Sources

An index fund owns 500 stocks and you own one share of the fund. Direct indexing cuts out the middle: you own the 500 stocks yourself, in a separately managed account, and a program trades them to track the index. The point of doing it this way is that each of the 500 positions is a place a loss can be harvested.

$1.16T In direct-indexing accounts at the end of 2025. Five providers hold 87% of it.
18% Of financial advisers used it in 2024; 49% at the big brokerage houses. 12% did not know what it was.
$5k The lowest retail minimum. $250,000 is typical through an adviser; $100,000 to $1 million for the long/short versions.

What you get and what you pay

A broad index ETF

  • One position. One line on the tax form.
  • Gains deferred by the in-kind mechanism; dividends taxed yearly.
  • No management fee beyond 3 to 10 basis points.
  • No losses to harvest unless the whole fund is down.

Direct indexing

  • Hundreds of positions, each with its own lots and its own loss opportunities.
  • Losses flow straight to your tax return. Gains do too, if the program realizes any.
  • A fee of 9 basis points direct to a retail investor, up to about 115 all-in through an adviser and platform.
  • Wash-sale exposure across every account in the household, because hundreds of stocks are now in play and a loss is disallowed if the same one is bought anywhere in the household within 30 days.
  • Customization: exclude an employer's stock, tilt away from a sector, hold a legacy position.

Why 500 positions find more losses than one fund

1 Loss opportunity in a robo-adviser that harvests with pairs of ETFs: the whole fund has to be under water.
500 Loss opportunities in a stock-level account. Some stocks are down in every market.
44 vs 21% Of a $50,000 deposit harvested over twenty years, stock-level versus ETF-pair, in one provider's simulation.

An index rises most years, so the whole-fund loss appears only in a bad year. Individual stocks fall all the time, so a stock-level program keeps harvesting through a rising market. Both methods fade as the account ages: the same provider’s live accounts show a harvest yield of 7.9% in a first-year account against 0.4% in a twelve-year-old one.

Harvest yield counts losses realized. It is not a return and not the tax saved; twice the losses only means twice the benefit if there are twice the gains to offset. No provider publishes an aged, audited after-tax return for either method.

Who it fits

Direct indexing beats the ETF when the harvested losses have somewhere to go: recurring short-term gains elsewhere, steady new contributions that keep creating fresh lots, or an exit through gift or estate. Without one of those the benefit is front-loaded (about 155 basis points in the first year in the standard simulation) and near zero after year five, while the fee and the wash-sale bookkeeping continue.

It also fits anyone who needs to hold or avoid specific stocks, which an index fund cannot do.

Two things to know before signing

First, moving an existing portfolio in means selling it, and selling a low-basis portfolio is the one thing this whole site says to avoid. Providers offer a “gains budget” that staggers the sales over years, which spreads the tax without removing it. Direct indexing is a product for new money.

Second, the same harvesting logic is sold at very different prices, and the price decides whether the arithmetic works. That is the next read.