I’m curious if any of you have tried a “Personalized Index Managed Account” that many brokerages like Schwab has started offering main stream. Also called “Personalized Index or Direct Indexing
I’d much rather hear from people who actually have tried it versus, the theoretical opinions, but whatever.
For those of you that are wondering, “Personalized Index Managed Account” is something brokerage accounts have been offering.
Instead of buying an index fund or ETF, like the S&P500 index fund, instead your setup a special managed account, and your brokerage buys stocks to make up the S&P500 index in near almost identical to what makes up the index it is mimicking… The caveat is at the end of the year, a small percentage of the account (I’m making this up 2-4% of the total account) that is the worst performing part of that index is sold to harvest capital losses that year…That 2-4% is replaced with something comparable and/or repurchased after the 30 day wash sales rules. They claim that the managed account generally performs pretty close to the index it is tracking even after the low management fees, BUT also harvests additional capital losses on top that you can use to offset capital gains you have elsewhere.
This supposedly isn’t new, it’s been around for 10+ years. But in the past it was more of a manual process, significantly more expensive, and made sense only for people with extremely large portfolios in after tax accounts. But now with computers/technology/AI etc, brokerage companies can now do this pretty easily at a much lower cost so that it is now available more for main street. I was speaking to one of Charles Schwab head of managed accounts, and she claims that $100k is enough to build one personalized index to track 1 index, and showed me their portal to track how that is all performing, and the sort of tax statements you would get at the end of the year (no, you would not need to import stock transactions for 500+ companies. They generate a summarized tax form that can be used on your 1040.
Normally, I would shun “managed” accounts, because I question whether humans can really beat the indexes for the long haul. BUT, this is an exception. I don’t think this is trying to “beat” the indexes, they are trying to mimic the indexes, and provide added value by providing harvested capital losses each year.
Doesn’t seem to be worth management fees just to do some tax loss harvesting. Perhap these funds would be useful to those who do not want to invest in evil companies and still have an index fund.
Tax loss harvesting isn’t that great, I noticed on my brokerage accounts that because of me selling off losers, I have now more tax liability gains then actual gains so it still has to be paid.
Long term gains for me currently is 18.8 rate. When I retire, if I should get 0 for some of the gains and a good portion of it would be at the 15 percent rate which will reduce my taxes. Perhaps that isn’t really tax loss harvesting but averaging your gains to take advantage of progressive tax rates. Kind of the reverse I suppose, now selling the deferred gains earlier than needed to take advantage of low tax rates during retirement.
Unlikely humans can beat the indexes but most likely AI can, I suppose it depends on the cost of all that compute power and the fees that need to be charged. A low cost AI powered fund would be what would interest me.
First, remember the SP500 is mostly the SP50 because it is a weighted index. The top 10 companies are 24% of the index, the other 490 split the 76%.
So what you can do is just buy some shares in the top dozen or two companies in the S&P500, and at the end of the year tax harvest some losses and use the cash to buy shares in the largest few companies you don’t own.
Looked at the stocks I own compared to the top SP500 companies and about 90 percent of my money is in the top 20 so I suppose I’ve been doing all this work and it is bascially a varaiation of the SP500 index fund. Outperformng SP500 because I am mostly in tech so my account usually moves in sync with Nasdaq instead of SP500.
This is an interesting idea, so basically I chose mostly tech stocks and make my own Nasdaq index. So anyone can customize what they want. Be deversified or concentrate on certain sectors.
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