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What is Direct Indexing?

Owning an index’s stocks directly unlocks customization and tax savings a fund share can’t offer.

Sep 21, 2026 | 6MIN

Author

Vise

Return

What is Direct Indexing?

Owning an index’s stocks directly unlocks customization and tax savings a fund share can’t offer.

Sep 21, 2026 | 6MIN

Author

Vise

Return

What is Direct Indexing?

Owning an index’s stocks directly unlocks customization and tax savings a fund share can’t offer.

Sep 21, 2026 | 6MIN

Author

Vise

In this article

How Direct Indexing works

What Direct Indexing lets you do

How the tax benefit works

A quick example

Direct Indexing vs. index funds and ETFs

Who it’s for

Things to consider

How Vise approaches Direct Indexing

How Direct Indexing works

Direct Indexing is an investment strategy where you own the individual stocks that make up an index, held in a separately managed account, instead of buying an index fund or ETF. Because you own the securities directly, you can customize the portfolio and harvest tax losses at the individual-stock level.

Pick the index

A benchmark is chosen: the S&P 500, a total-market index, or a custom blend.

Buy the stocks

The manager buys the index’s underlying stocks, or a representative sample that tracks it closely.

Own them directly

The stocks sit in a separately managed account in your name, visible and yours.

Manage at the stock level

Customize holdings and harvest losses position by position, which a single fund share can’t do.

A manager recreates a benchmark, such as the S&P 500, by buying its underlying stocks, holding either every constituent or a representative sample that tracks the index closely. Those stocks sit in a separately managed account in your own name, so unlike a fund, you can see and control every holding.

What Direct Indexing lets you do

Owning the stocks directly, rather than a single fund share, opens up three things:

Customization

Exclude companies or sectors, apply values-based screens, or manage around a stock you already hold too much of.

Tax management

Harvest losses at the individual-stock level (more on that below).

Transparency

Every position, and its cost basis, is visible and yours.

How the tax benefit works

Because you hold the individual stocks, some are down even when the index is up, and each is a chance to harvest a loss that offsets gains elsewhere with a similar stock taking its place, so your market exposure stays intact.

A single index-fund share can’t do this. It moves up or down as one unit. Over time, those individually harvested losses become a meaningful source of after-tax return.

A quick example

Suppose a client wants broad S&P 500 exposure but already owns a large position in one tech stock. A direct-index portfolio can track the index while excluding that name, so the client gets the market without doubling down on a company they’re already heavy in. A fund can’t apply that kind of screen.

Direct Indexing vs. index funds and ETFs

An index fund or ETF hands you the index as one pooled share: cheap, simple, and hands-off. Direct Indexing hands you the underlying stocks, trading a little more cost and complexity for the tax management and customization a single share can’t offer. See Direct Indexing vs. ETFs for the full comparison.

Who it’s for

Direct Indexing often earns its keep for investors in taxable accounts and higher tax brackets, where the tax management is worth most, and for anyone who wants to tailor an index to personal preferences or an existing concentrated position. The tax benefit does nothing inside an IRA or 401(k).

It’s usually offered through an advisor or platform with an account minimum, though technology has pushed those minimums well below traditional SMA levels.

Things to consider

There are more holdings to track than with a single fund, and a direct-index portfolio won’t mirror the index perfectly. Some tracking error is normal, and the manager’s job is to keep it controlled while capturing the tax and customization benefits. Vise’s optimizer, for example, treats tracking error as an explicit constraint: every harvest and customization is weighed against how far it would move the portfolio from its benchmark.

How Vise approaches Direct Indexing

Vise, which builds portfolio management software for financial advisors, runs Direct Indexing in-house rather than through a third-party manager. The same engine powers its tax-aware Long Short strategy, and the same discipline builds its fixed-income SMAs. Three things distinguish the approach:

One engine, not layered services

Loss harvesting, tracking-error control, and wash-sale checks run inside the same optimization that manages the portfolio, not as separate overlay services bolted on top.

Customization without the upkeep

Exclusions, ESG screens, sector limits, and factor tilts are entered once, and the optimizer honors them on every subsequent trade. Portfolios can also track a custom or blended benchmark an advisor defines.

Harvesting runs daily

Every portfolio is checked for harvestable losses each day at current prices, and replacements are chosen to keep the portfolio’s overall sector and factor profile in line with its index.

Direct Indexing lives or dies on how the portfolio is managed. A rules-based system fires one trigger at a time, and the triggers conflict: the rebalancing rule wants to sell what the tax rule wants to hold. Vise instead runs a multi-objective optimization that weighs taxes, drift, risk, cost, and the client’s restrictions in a single calculation, and only then trades.

See how Vise builds Direct Indexing portfolios that harvest losses and honor each client’s preferences.

Learn More

1. Capital losses offset capital gains, and the replacement security must not be substantially identical — IRS Topic No. 409, Capital Gains and Losses (IRC § 1211(b)); IRS Publication 550, Investment Income and Expenses, "Wash Sales" (IRC § 1091). https://www.irs.gov/taxtopics/tc409 · https://www.irs.gov/publications/p550

2. IRAs and 401(k) plans are tax-deferred, so there is no annual capital gains tax for a harvested loss to offset — IRS Topic No. 451, Individual Retirement Arrangements (IRAs); IRS, 401(k) Plans. https://www.irs.gov/taxtopics/tc451 · https://www.irs.gov/retirement-plans/401k-plans

Vise AI Advisors, LLC ("Vise") is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of Vise by the Commission. Third party logos are property of their respective owners and are not affiliated with Vise. The information set forth herein is intended to be informational in nature and is not intended to be investment advice. Please consult with a qualified professional advisor for advice specific to your situation. All investing involves risk, including the risk of loss of invested principal. Past performance is not an indicator of future results

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1 Vise "Platform Assets" encompasses assets actively managed by Vise as well as assets that Vise aggregates, monitors, and uses to generate customized proposals. As of 6/1/2026.
2 This calculation is based on total realized losses as of 12/15/25 and assumes a long-term capital gains tax rate of 20% and a short-term capital gains tax rate of 41%.
3 Source: Cerulli Associates, U.S. Asset and Wealth Management Edition, 2021

Images and graphs on this page are for illustrative purposes only. Does not represent actual client results. Past performance does not guarantee future results.

Tax-Loss Harvesting Disclosures

Vise AI Advisors, LLC (“Vise”) is an SEC-registered investment adviser. The material presented is for informational purposes only and should not be construed as investment advice. It is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, strategy, or investment product. Nothing on this website should be construed as personalized investment advice, which can only be provided in one-on-one communications.

Investing in securities involves risks, including the potential loss of money, and past performance does not guarantee future results. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes and may not reflect actual future performance.

Product images shown are for informational and illustrative purposes only and may not reflect how they will appear within the product. Third-party trademarks and service marks referenced are the property of their respective owners.

The portfolio built for your biggest client.
For every client.

Book a Demo

Product

Resources

Company

521 Broadway
New York, NY 10012

+1 201 375 3969

Form ADV

Form CRS

Images and graphs on this page are for illustrative purposes only. Does not represent actual client results. Past performance does not guarantee future results.

Tax-Loss Harvesting Disclosures

The portfolio built
for your biggest client.
For every client.

Book a Demo

Product

Resources

Company

521 Broadway
New York, NY 10012

+1 201 375 3969

Form ADV

Form CRS

Images and graphs on this page are for illustrative purposes only. Does not represent actual client results. Past performance does not guarantee future results.

Tax-Loss Harvesting Disclosures

What is Direct Indexing?

What is Direct Indexing?

What is Direct Indexing?

How Direct Indexing works

Pick the index

Buy the stocks

Own them directly

Manage at the stock level

What Direct Indexing lets you do

Customization

Tax management

Transparency

How the tax benefit works

A quick example

Direct Indexing vs. index funds and ETFs

Who it’s for

Things to consider

How Vise approaches Direct Indexing

One engine, not layered services

Customization without the upkeep

Harvesting runs daily

See how Vise builds Direct Indexing portfolios that harvest losses and honor each client’s preferences.

The portfolio built for your biggest client.For every client.

The portfolio built for your biggest client.For every client.

The portfolio builtfor your biggest client.For every client.

The portfolio built for your biggest client.
For every client.

The portfolio built for your biggest client.
For every client.

The portfolio built
for your biggest client.
For every client.