What is Personal Indexing? 

Personal indexing is an approach to index investing that involves buying a subset of the individual stocks that make up an index (Index Tracking Portfolio) with the intent of closely tracking the performance of the index. This is in contrast to buying an index mutual fund or index exchange-traded fund (index ETF) that tracks the index. Personal indexing can provide greater autonomy, control, and tax advantages to certain investors over owning an index mutual fund or an index exchange-traded fund (index ETF).

What are Personal Index Portfolios? 

Personal Index Portfolios are fully allocated portfolios of individual stocks and ETFs that combine the best features of low-cost indexing, asset allocation, active tax-management, and the inclusion of your environmental, social and faith-based views.

What is Active Tax Management?

The combination of tax-loss harvesting, gains harvesting, gains deferral, holding period management, tax-lot identification, charitable gifting identification, and monitoring IRS rules in the context of a client’s unique tax budget and asset allocation.

What is Tax-Loss Harvesting?

Tax-loss harvesting is the selling of securities at a loss for the purpose of recognizing a capital loss. You get what amounts to a small rebate by selling the security, buying a substitute, then using these losses to offset gains from elsewhere in your portfolio. If you don’t have any gains to offset today, you can bank these losses for use at a future date. We monitor your portfolio daily, looking for ways to lower your taxes through active tax-loss harvesting.

What is a Tax Budget, and how is it used to manage my account? 

A Tax Budget is a constraint we use to manage and control net realized gains in your portfolio. It is set as an annual dollar budget and established as part of your overall financial planning needs. It is only used for taxable accounts. 

How often do you review my account?  

We review your account every day for opportunities to help improve your portfolio -- whether it's reducing drift to your assigned asset allocation, lowering taxes through active tax management, or making sure social or faith-based views are being followed. 

How much does Active Tax Management improve returns? 

Many studies have shown that on average, over time, investors can expect a positive improvement in after-tax returns of roughly 1%.  Below is an excerpt from a recent WSJ article discussing Direct Indexing. 

“Terry Burnham, a finance professor at Chapman University, co-wrote a paper that studied the effectiveness of tax-loss harvesting on a portfolio of the 500 largest U.S. common stocks by market capitalization from 1926 to 2018. It calculated that a person who continued to invest in the portfolio each month using a tactic akin to direct indexing would have improved after-tax returns by 1.08 percentage points annually compared with just owning the portfolio and not tax-loss harvesting. The calculation assumed a long-term capital-gains tax rate of 15% and a short-term rate of 35%”. 

How will I know how much I've saved?

Our account-level estimated Taxes Saved Report allows us to document the value we are adding through tax management for each client. You can see a sample report here.

How does the cost of a Personal Index Portfolio compare to an ETF model portfolio?

Our starting point when constructing portfolios is to use low-cost index ETFs as building blocks.  In that scenario, an all-ETF portfolio with a 70/30 allocation has an internal expense ratio of a little less than 5bps.

When we swap out the US large-cap ETF for an individual stock tracking portfolio the internal expense ratio of the entire portfolio goes down to about 3.5bps since the portfolio of individual stocks doesn’t have an expense ratio. 

We provide Personal Index Portfolios, active tax management, environmental, social, and faith-based investing at no additional cost above our investment advisory fee.

For clients already invested in stocks, mutual funds and/or ETFs, what does the transition process look like, and are there tax implications to consider?

For each new client, we analyze multiple scenarios detailing the tradeoffs between portfolio drift and realized capital gains when transitioning a clients’ existing holdings. Those scenarios represent a range of potential decisions from high capital gains and low drift to low capital gains and high drift.

The result of this scenario analysis is a written transition plan and an annual tax budget we use to manage the process within our active tax management framework. This gives the client control over annual net realized gains while understanding the risk and return tradeoffs involved.

What does a comprehensive financial plan look like?

Comprehensive financial plans look like this example financial plan for a couple nearing retirement.pdf. Your plan will be tailored to your specific situation, including hyperlinks to resources you can explore further for your reference and education. These plans typically involve four 90-minute meetings, including the plan presentation, that occur over the course of about 6 weeks. We may also securely collect information from you such as your tax returns, brokerage account statements, pay stubs, employee benefits guide, insurance policies, etc. in order to provide specific guidance and recommendations within your financial plan.

It should be noted that financial plans are meant as a foundational starting point in the life-focused financial planning process. And while important, we believe the true value in the process of financial planning is an ongoing relationship with the families that we serve so that we can help empower them to put the financial plan into action and achieve their desired outcomes.

What is Life Planning?

Life Planning is the process of discovering the full life we long to live and making it happen, no matter where we start. Nobody has ever wanted their life to be all about owning a diversified portfolio. Rather, a diversified portfolio makes possible the things we want to do with our lives. Our life-focused planning asks the question, "what are those things"?

What is a PFS?

PFS, or Personal Financial Specialist, is the financial planning specialty credential issued by the American Institute of Certified Public Accountants (AICPA) exclusively to qualified CPAs with proven expertise and experience in comprehensive personal financial planning. The AICPA is the premier professional association for CPAs in the U.S. and has more than 350,000 members. You must be a CPA member in good standing of the AICPA before you can obtain the PFS Credential.

As an added benefit, when you choose a CPA/PFS for your financial planning needs, you also gain an advantage thanks to their knowledge and expertise in related areas such as tax, accounting and business management. This ensures that your needs are more fully met through an integrated, holistic approach.