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I Thought I Was Going to Cry… Thumbnail

I Thought I Was Going to Cry…

Those were the words used by a prospective client I met with last week to describe her feelings when she first read through our proposal for a Personal Index Portfolio.  After reviewing several proposals from competitors, she was surprised to see that we had taken the time to ask about her values and beliefs and then integrated those into the portfolio, ensuring that her financial goals would be met and personalizing the portfolio in the process.  She had read the words “Personal Index Portfolios” on our website, but only after seeing the recommendations did she understand how that applied to her.

We are humbled by those types of comments, but we do hear them often, so we thought a refresher might be in order to explain the benefits of Personal Index Portfolios.

Our Personal Index Portfolios involve buying a subset of the individual stocks that make up an index (typically the S&P 500) with the intent of closely tracking the index’s performance. For the remainder of the portfolio (meaning asset classes other than large US stocks, i.e., S&P500), we use very low-cost index ETFs. This results in the underlying costs of the portfolio being approximately 3bps (1 basis point = .01 percent) for most of our clients. In addition to low costs, other benefits of this approach are that it allows for more control over the portfolio, including our "always-on" tax loss harvesting and inclusion of a client’s environment and social or faith-based views.

We Have a Laser Focus on Costs...

Both low-cost indexing and personal indexing (also known as direct indexing) help minimize fees and expenses, which can significantly impact your overall investment returns over time. By choosing low-cost index funds or using a personal indexing strategy, we help you avoid the high fees associated with actively managed funds or individual stock picking. This can help you keep more of your investment returns and potentially earn higher returns over the long term. It's important to keep in mind that even small differences in fees and expenses can add up over time and have a significant impact on your investment returns, so choosing the right investment strategy is crucial for achieving your financial goals. Remember, the fees discussed in this section are portfolio costs - those incurred inside mutual funds, ETFs, or other investment products. The fees you pay an investment advisor (like us) are separate, and our fee schedule can be found here, which also covers comprehensive financial planning.

...And That Includes Taxes

Secondly, active tax management is an important component of our Personal Index Portfolios, which can help you minimize the taxes you pay on your investments and increase your after-tax returns. This is because personal indexing allows us to buy and sell individual stocks or securities, which gives us greater flexibility to manage your portfolio in a tax-efficient way. For example, our “always on” tax-loss harvesting automatically offsets capital gains by selling losing investments and buying similar investments to maintain your overall investment strategy. This can help you reduce your tax liability and increase your after-tax returns over the long term. In our previous post, "Is Year-End the Best Time to Look for Tax-Loss Harvesting Opportunities? No", we document the benefits of "always on" tax loss harvesting using two studies to show that active tax management can improve after-tax returns by 1% or more annually. By actively managing your portfolio tax-efficiently, you can keep more of your investment returns and achieve your financial goals more effectively.

Incorporating Your Environmental, Social, or Faith-Based Views

Investing in companies that align with your environmental, social, and faith-based views is known as socially responsible investing or SRI. SRI allows you to invest in companies that align with your values and beliefs while avoiding those that don't. This can help you make a positive impact on the world while achieving your financial goals. For example, you may choose to invest in companies that prioritize environmental sustainability, social justice, or corporate responsibility while avoiding companies that engage in practices that conflict with your values or faith. By aligning your investments with your values and beliefs, we create a portfolio that reflects your personal priorities and contributes to a better world for everyone.

The best way to see how all this works is to take our risk and personality assessment here.  It's short (less than 5 minutes) but will allow us to create a personalized proposal just for you. If you would like even more customized recommendations, reach out to us about securely uploading your portfolio statements so we can use those in the analysis.  As always, you can schedule a meeting to discuss your personal situation with us here.

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.