When will Vanguard's Direct Indexing be Available to Retail Investors?

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ArmchairArchitect
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When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

I know they acquired a company and plan to offer this soon, but when?

Looking forward to the ability to exclude certain companies I am not a fan of from my index fund portfolio, as well as the tax advantages.

https://www.wsj.com/articles/pros-and-c ... 1638390453

EDIT. I may have found the answer to my own question:
https://riabiz.com/a/2021/10/2/ink-dry- ... subsidiary

If true, I will probably cease putting any new funds into Vanguard and go with a brokerage that offers direct indexing to retail investors. Anyone know of a reputable brokerage that offers this right now or very soon?
Last edited by ArmchairArchitect on Wed Dec 08, 2021 3:50 pm, edited 4 times in total.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by stan1 »

My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

stan1 wrote: Wed Dec 08, 2021 3:37 pm My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
Assuming your prediction ends up being correct, how does an individual get access to their premium/advisory offerings? Are these offerings no-charge based on dollar amount of invested assets, or do they operate on some fee structure?

Vanguard being a company that is owned by investors, this should really be offered to all retail investors as a value-add given the cost is minimal to Vanguard.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Makefile »

ArmchairArchitect wrote: Wed Dec 08, 2021 3:42 pm
stan1 wrote: Wed Dec 08, 2021 3:37 pm My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
Assuming your prediction ends up being correct, how does an individual get access to their premium/advisory offerings? Are these offerings no-charge based on dollar amount of invested assets, or do they operate on some fee structure?

Vanguard being a company that is owned by investors, this should really be offered to all retail investors as a value-add given the cost is minimal to Vanguard.
How do you know the cost is minimal?

Think of how big the 1099 forms would be, and the resulting avalanche of support calls every time they come out--some for errors on the forms, others just for Vanguard to explain why the form is correct.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by UpperNwGuy »

I don't get it. There are so many mutual funds already in existence that there must be a fund for everybody's tastes. Why would anyone want to endure the headaches of direct indexing?
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Makefile »

UpperNwGuy wrote: Wed Dec 08, 2021 3:55 pm I don't get it. There are so many mutual funds already in existence that there must be a fund for everybody's tastes. Why would anyone want to endure the headaches of direct indexing?
I think the idea is that the tax-loss harvesting that funds currently do internally to avoid making a capital gain distribution (in-kind redemptions being another avenue that helps also) would instead happen directly on the investor's personal tax return, producing big losses each year to hold and offset against future capital gains, or take the 3,000 loss against ordinary income.

You could also have tax-efficient placement customized to your specific account balances. So you might hold the S&P 500 across all your accounts, but have the highest dividend yield stocks inside an IRA while all the no-dividend stocks are in taxable.

In addition, as the OP points out, being able to tweak the index to the investor's liking; not that I think that is a good idea.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

Makefile wrote: Wed Dec 08, 2021 3:48 pm
ArmchairArchitect wrote: Wed Dec 08, 2021 3:42 pm
stan1 wrote: Wed Dec 08, 2021 3:37 pm My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
Assuming your prediction ends up being correct, how does an individual get access to their premium/advisory offerings? Are these offerings no-charge based on dollar amount of invested assets, or do they operate on some fee structure?

Vanguard being a company that is owned by investors, this should really be offered to all retail investors as a value-add given the cost is minimal to Vanguard.
How do you know the cost is minimal?

Think of how big the 1099 forms would be, and the resulting avalanche of support calls every time they come out--some for errors on the forms, others just for Vanguard to explain why the form is correct.
See the WSJ article I posted which talks about the costs of direct-indexing software.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Dottie57 »

Makefile wrote: Wed Dec 08, 2021 3:48 pm
ArmchairArchitect wrote: Wed Dec 08, 2021 3:42 pm
stan1 wrote: Wed Dec 08, 2021 3:37 pm My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
Assuming your prediction ends up being correct, how does an individual get access to their premium/advisory offerings? Are these offerings no-charge based on dollar amount of invested assets, or do they operate on some fee structure?

Vanguard being a company that is owned by investors, this should really be offered to all retail investors as a value-add given the cost is minimal to Vanguard.
How do you know the cost is minimal?

Think of how big the 1099 forms would be, and the resulting avalanche of support calls every time they come out--some for errors on the forms, others just for Vanguard to explain why the form is correct.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

Vanguard press release, Vanguard to offer direct indexing capabilities through acquisition of Just Invest
VALLEY FORGE, PA (July 13, 2021)

...Vanguard’s direct indexing offer will build upon a pilot program offered to its RIA clients over the past year and a half, powered by Just Invest...

..."We are confident that Just Invest’s direct indexing capabilities will be a valuable complement to our ongoing efforts to help advisors redefine and underscore their client value proposition.”...

...Over time, Vanguard will work with the Just Invest team to expand its offer to a broader set of clients and build upon existing capabilities.
I see "RIA clients" and "help advisors..."

I don't see the word "soon" in there anywhere.

I do see the phrase "over time:" "Over time, Vanguard will work with the Just Invest team to expand its offer to a broader set of clients"

And my interpretation of the "over time" sentence is that Vanguard is not even quite sure yet exactly what they've bought or how they are going to integrate it with anything else Vanguard is doing.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Makefile »

One interesting implication of direct indexing is in regard to the issue that keeps getting brought up periodically (including by Bogle himself in his final years), is that with funds, the voting rights go to the fund company, so you have a small handful of index fund companies with an increasingly large % of voting rights in each company.

As direct indexing matures, you could have investors with big (multimillion) stakes in ETFs/funds take an in-kind redemption and switch to direct indexing instead (tax-free), and they would also take over the voting rights to the stocks at that point.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by sycamore »

Q: "When will Vanguard's Direct Indexing be Available to Retail Investors?"

A: My guess is March 14, 2029. No particular reason for that guess.
Also, I predict it will be available to RIA clients sooner than that.

The "Just Invest" acquisition was also discussed in an earlier thread: viewtopic.php?f=10&t=353466
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Apathizer »

UpperNwGuy wrote: Wed Dec 08, 2021 3:55 pmI don't get it. There are so many mutual funds already in existence that there must be a fund for everybody's tastes. Why would anyone want to endure the headaches of direct indexing?
I was thinking the same. The only equities I want to avoid are expensive, low-profit or unprofitable companies. This is fairly easily done with a factor-slant. Direct indexing seems unnecessarily complicated to me.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by arcticpineapplecorp. »

i trust Wes Gray's take on this. ArmchairArchitect, meet Alpha Architect:
Skeptics warn the whole thing is a costly throwback for investors. After all, the evidence that active stockpicking can’t consistently beat the market is overwhelming. If even the pros can’t beat a benchmark, why would an individual do any better? “Every paper, every study in the world suggests people should not be involved in investing,” says Wes Gray at Alpha Architect, which offers ETFs as well as a direct-indexing service. He says the idea makes sense for a niche group of investors with specific needs, but doubts it will be helpful for most. “All these tools are going to empower the worst behavioral decisions,” he says.

And even that tax-loss harvesting strategy isn’t always great. It’s not necessary in tax-advantaged retirement accounts, where individual investors hold much of their wealth. And selling to offset tax incurs higher trading costs and causes deviations from the benchmark that will persist for at least a month, since U.S. wash-sale rules ban investors from buying back a security within 30 days. Meanwhile, for the tactic to be worth it, there must be a capital gain that needs offsetting. “There’s a pretty good argument that the costs and frictions are way higher than people think,” says Gray. “In 99% of the cases I cannot justify doing it.”

source: https://www.bloomberg.com/news/articles ... tual-funds
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by northfork »

I'm speculating that some of the appeal could be thematic/ESG. Personally, I would love to remove a couple companies from VTI that exploit human weakness via machine learning for profit. I wouldn't want it to be expensive or difficult but applying a filter to a TSM or s&p500 to remove certain companies that I have moral issues with could be something I'd do.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by sycamore »

Vanguard's advisor web site is marketing "Personalized Indexing," telling advisors that
With our acquisition of Just Invest, a wealth management platform that includes Kaleidoscope™, you can access personalized indexing solutions tailored to fit each of your clients' specific needs.
To be clear, that's not for retail investors. But that web page does offer a "Client-approved brief" that poses questions for an individual investor:

Image

Those are good questions that I'm glad they're putting to the investor.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Makefile »

northfork wrote: Wed Dec 08, 2021 4:59 pm I'm speculating that some of the appeal could be thematic/ESG. Personally, I would love to remove a couple companies from VTI that exploit human weakness via machine learning for profit. I wouldn't want it to be expensive or difficult but applying a filter to a TSM or s&p500 to remove certain companies that I have moral issues with could be something I'd do.
That's the funny thing about ESG is that those particular companies tend to score super well on ESG metrics
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by afan »

Having a seriously undiversified portfolio, say due to company stock, could be a reason to build a custom portfolio around it.

Tax loss harvesting as a routine across hundreds or thousands of stocks could be a nightmare. I cannot see the appeal for those who have a handful of index funds rather than overweight in a few individual stocks.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Lastrun »

Makefile wrote: Wed Dec 08, 2021 4:08 pm One interesting implication of direct indexing is in regard to the issue that keeps getting brought up periodically (including by Bogle himself in his final years), is that with funds, the voting rights go to the fund company, so you have a small handful of index fund companies with an increasingly large % of voting rights in each company.

As direct indexing matures, you could have investors with big (multimillion) stakes in ETFs/funds take an in-kind redemption and switch to direct indexing instead (tax-free), and they would also take over the voting rights to the stocks at that point.
My DW gave me an Audible subscription a while back and I was listening to the new book Trillions reviewed elsewhere on this thread. There is a chapter on the voting issue and my thoughts were that one reason that a Vanguard or Blackrock would promote this is what you say above---to shed the voting rights issues caused by the sheer size of VTI, ITOT, and the other big index funds.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

I think direct indexing is probably a gimmick, like enhanced indexing and fundamental indexing, that won't last. It may not vanish completely.

I don't see how it's terribly different from Marketocracy mFolios; or Ka-Ching!, the original incarnation of Wealthfront; or Motif Investing. KaChing! didn't die but morphed into something completely different. Motif Investing, what's happening with Motif Investing? Oh. It's gone. Shuttered in 2020. mFolios, mFolios... can't seem to find out if it still exists...

All of them let you open an account and have a portfolio of individual stocks that was automatically managed to duplicate the trades of some supposedly brilliant manager, or strategy. You could select from many dozens of managers and/or strategies.

Perhaps "direct indexing" is cheaper, perhaps automated tax-loss harvesting is worth something, perhaps it will let you mirror better portfolios. It's KaChing! for the new decade.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Gaston »

My understanding (and pls correct me if I am wrong) is that, with direct indexing, the benefit of tax-loss harvesting will diminish over time. And then you’ll be left with a portfolio of possibly several hundred stocks that you can never unwind. Unwind = convert back into an ETF without incurring massive tax consequences.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

Gaston wrote: Wed Dec 08, 2021 8:07 pm My understanding (and pls correct me if I am wrong) is that, with direct indexing, the benefit of tax-loss harvesting will diminish over time. And then you’ll be left with a portfolio of possibly several hundred stocks that you can never unwind. Unwind = convert back into an ETF without incurring massive tax consequences.
Most likely, but the tax savings from the enhanced tax-loss harvesting can more than make up for it if the capital gains down the road are incurred once you have retired and thus in a lower/zero tax bracket (even for capital gains tax which you can pay as little as 0% for based on income) than when you were working and tax-loss harvesting.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by tibbitts »

ArmchairArchitect wrote: Wed Dec 08, 2021 8:11 pm
Gaston wrote: Wed Dec 08, 2021 8:07 pm My understanding (and pls correct me if I am wrong) is that, with direct indexing, the benefit of tax-loss harvesting will diminish over time. And then you’ll be left with a portfolio of possibly several hundred stocks that you can never unwind. Unwind = convert back into an ETF without incurring massive tax consequences.
Most likely, but the tax savings from the enhanced tax-loss harvesting can more than make up for it if the capital gains down the road are incurred once you have retired and thus in a lower/zero tax bracket (even for capital gains tax which you can pay as little as 0% for based on income) than when you were working and tax-loss harvesting.
It will probably end up like with tax deferral, where it's possible (though not likely, at least outside of the Boglehead realm) to overdo the strategy and end up actually paying more taxes than you would with a more conventional strategy.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

1) The beauty of it is, one can choose if/when to utilize the tax loss harvesting feature. There's literally zero downside to having this increased level of control as an individual versus it being out of one's control.

2) I don't want to get into politics, but there are more and more companies that I would like to exclude from my index funds due to the political causes they support or unethical business dealings they engage in. One can still have a very diversified index fund even after excluding a handful of companies and there's not much effort required of the individual to accomplish this.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

ArmchairArchitect wrote: Thu Dec 09, 2021 6:52 am...but there are more and more companies that I would like to exclude from my index funds due to the political causes they support or unethical business dealings they engage in. One can still have a very diversified index fund even after excluding a handful of companies and there's not much effort required of the individual to accomplish this...
I'm sympathetic to ESG and for a while invested in what were then called SRI funds myself. My mom smoked three packs of filter-tip Marlboros a day, and died of lung cancer in her early sixties.

The thing is, though, the stock market is big and individual stocks are small. Yes, I think "custom ESG," the S&P 500 without the ten companies you hate most, is an attractive marketing idea. But don't kid yourself that it's likely to make much financial difference, one way or another.

I mean, for a while leading up to the tech crash, "SRI" funds seemed to be doing well by doing good, but it was an accidental byproduct. The screens they were using had the side-effect of making them tech-heavy.

When you buy a traditional pre-built ESG fund, like the Vanguard FTSE Social Index Fund, in some cases the fund management and/or the index provider says that they are doing something or other to influence corporate behavior. "Hey, if you can just boost this number on our scoring system you can send out a press release announcing that you are now in the FTSE4GOOD index." Does that have any social effect? Beats me.

But I'm pretty sure I wouldn't do much by somehow excluding Altria (maker of Marlboros) from my holdings. It's 0.17% of Total Stock. On, say, a $100,000 holding, that's $170 or about four shares worth. If I wanted to do more than gripe about tobacco companies, rather than excluding Altria, it would probably be more effective to buy four shares of stock and go to an annual meeting and introduce a shareholder resolution.

Also, for better or worse, I kind of like the Total Stock Market Index Fund and I don't think a Total stock market holding will be offered via direct indexing soon, if ever.

Anyway, if you want to do this, my personal opinion is that you should be actively shopping around and continuously looking at companies that offer customized direct indexing now, if there are any, rather than just waiting for Vanguard. And that you will be better served by digging into the holdings and screens used by existing ESG funds and ETFs to find one that matches your concerns, and using one of those until the day comes when you can set up your own custom direct indexing solution.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by rkhusky »

Makefile wrote: Wed Dec 08, 2021 3:48 pm
ArmchairArchitect wrote: Wed Dec 08, 2021 3:42 pm
stan1 wrote: Wed Dec 08, 2021 3:37 pm My guess is never to Vanguard retail self directed investors, it would be bundled into an AUM advisory service as a "premium" service. But that's a guess.
Assuming your prediction ends up being correct, how does an individual get access to their premium/advisory offerings? Are these offerings no-charge based on dollar amount of invested assets, or do they operate on some fee structure?

Vanguard being a company that is owned by investors, this should really be offered to all retail investors as a value-add given the cost is minimal to Vanguard.
How do you know the cost is minimal?

Think of how big the 1099 forms would be, and the resulting avalanche of support calls every time they come out--some for errors on the forms, others just for Vanguard to explain why the form is correct.
The article quotes rates of 0.25% or 0.30%, but that is attached to "certain clients" or "affluent clients". You probably need a high AUM to get those rates. How much would you be willing to pay if you have a modest portfolio of $1-$2 million? 1%, 1.5%?

The low basis that you end up with (and high future cap gains) is not much different than with mutual funds. I have some VTSAX that I bought 10 years ago for $30/sh and now its $115.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by prioritarian »

ArmchairArchitect wrote: Thu Dec 09, 2021 6:52 am 1) The beauty of it is, one can choose if/when to utilize the tax loss harvesting feature. There's literally zero downside to having this increased level of control as an individual versus it being out of one's control.

2) I don't want to get into politics, but there are more and more companies that I would like to exclude from my index funds due to the political causes they support or unethical business dealings they engage in. One can still have a very diversified index fund even after excluding a handful of companies and there's not much effort required of the individual to accomplish this.
The upside to being able to TLH individual stocks is probably higher than somewhat conservative index investors appreciate. For example, Barry Ritholtz's firm stated that they achieved an excess 10% return from TLHing direct indices in 2020 (this was obviously an usual year with steep losses ... but still).

Moreover, direct indexing is already available to retail investors at a very low cost (0.25%) at wealthfront and a few other brokers. At wealthfront the fee is identical to their fee for robo investing with vanguard funds so this suggests that the cost of algorithmic direct indexing is very low.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

prioritarian wrote: Fri Dec 10, 2021 1:22 pm...Moreover, direct indexing is already available to retail investors at a very low cost (0.25%) at wealthfront and a few other brokers. At wealthfront the fee is identical to their fee for robo investing with vanguard funds so this suggests that the cost of algorithmic direct indexing is very low...
But can you do custom indexing ("Emerging Markets index but without Brazil") or is this just the straight S&P 500 plus automatic tax-loss harvesting?
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by finite_difference »

Lastrun wrote: Wed Dec 08, 2021 7:24 pm
Makefile wrote: Wed Dec 08, 2021 4:08 pm One interesting implication of direct indexing is in regard to the issue that keeps getting brought up periodically (including by Bogle himself in his final years), is that with funds, the voting rights go to the fund company, so you have a small handful of index fund companies with an increasingly large % of voting rights in each company.

As direct indexing matures, you could have investors with big (multimillion) stakes in ETFs/funds take an in-kind redemption and switch to direct indexing instead (tax-free), and they would also take over the voting rights to the stocks at that point.
My DW gave me an Audible subscription a while back and I was listening to the new book Trillions reviewed elsewhere on this thread. There is a chapter on the voting issue and my thoughts were that one reason that a Vanguard or Blackrock would promote this is what you say above---to shed the voting rights issues caused by the sheer size of VTI, ITOT, and the other big index funds.
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.

I think that’s the major drawback to index investing as it stands. Tax loss harvesting, which is a tiny impact, is nothing by comparison.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by prioritarian »

nisiprius wrote: Fri Dec 10, 2021 4:33 pm
prioritarian wrote: Fri Dec 10, 2021 1:22 pm...Moreover, direct indexing is already available to retail investors at a very low cost (0.25%) at wealthfront and a few other brokers. At wealthfront the fee is identical to their fee for robo investing with vanguard funds so this suggests that the cost of algorithmic direct indexing is very low...
But can you do custom indexing ("Emerging Markets index but without Brazil") or is this just the straight S&P 500 plus automatic tax-loss harvesting?
US markets only: https://support.wealthfront.com/hc/en-u ... -Indexing-
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Soon2BXProgrammer »

UpperNwGuy wrote: Wed Dec 08, 2021 3:55 pm I don't get it. There are so many mutual funds already in existence that there must be a fund for everybody's tastes. Why would anyone want to endure the headaches of direct indexing?
I would do it if I could ACATS the biggest winners to my DAF. Currently none of the providers allow partial transfer and then rebalance slowly over time via dividends, other withdrawals, TLH, etc.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nedsaid »

finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Apathizer »

Direct indexing is just stock-picking/day-trading in another guise. No thanks. I'll stick with efficient market principles.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

prioritarian wrote: Sat Dec 11, 2021 10:37 am
nisiprius wrote: Fri Dec 10, 2021 4:33 pm
prioritarian wrote: Fri Dec 10, 2021 1:22 pm...Moreover, direct indexing is already available to retail investors at a very low cost (0.25%) at wealthfront and a few other brokers. At wealthfront the fee is identical to their fee for robo investing with vanguard funds so this suggests that the cost of algorithmic direct indexing is very low...
But can you do custom indexing ("Emerging Markets index but without Brazil") or is this just the straight S&P 500 plus automatic tax-loss harvesting?
US markets only: https://support.wealthfront.com/hc/en-u ... -Indexing-
I don't see any indication that you can customize the index at all:
Instead of using a single ETF (such as VTI) or index fund to invest in US stocks, US Direct Indexing purchases up to 100, 500, or 1,000 (depending on your account size) of the individual stocks with the largest market capitalizations in the US equity market on a market-weighted basis, along with a completion ETF of smaller companies, to match the behavior of an ETF that seeks to represent the total market of US stocks (VTI). This allows us to take advantage of the countless opportunities for tax-loss harvesting presented by the movement of individual stocks, to further improve your investment performance.
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luckyducky99
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by luckyducky99 »

Schwab, maybe.

https://www.thinkadvisor.com/2021/10/19 ... next-year/
Using the program, advisors will be able to adjust clients’ allocations in these indexes to align with their value preferences, to reduce concentrated stock positions they may already have, often through employment compensation programs, and to reduce their taxes by identifying individual stocks that can be sold at a loss and replaced with comparable stocks without violating wash sale rules.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nisiprius »

luckyducky99 wrote: Sat Dec 11, 2021 3:38 pm Schwab, maybe.

https://www.thinkadvisor.com/2021/10/19 ... next-year/
Using the program, advisors will be able to adjust clients’ allocations in these indexes to align with their value preferences, to reduce concentrated stock positions they may already have, often through employment compensation programs, and to reduce their taxes by identifying individual stocks that can be sold at a loss and replaced with comparable stocks without violating wash sale rules.
I think this might be what this is all about: giving advisors something profitable to offer to clients who want "indexing."
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by asset_chaos »

The direct indexing talk now is about deleting companies you don't like. Can you also overweight companies you like? Seems like a trivial capability already implied in the direct indexing management software. E.g. who'd like zero Altria, 3x market weight Apple, and 0.2x market weight GE? How soon, I wonder, until the marketing becomes

express your preferences with direct indexing

and too many people become their own active manager while being told they're engaged in virtuous indexing. Even if a tiny number of people get a compelling, genuine, and cost-effective benefit from direct indexing, the overwhelming marketing will be to lure people away from low cost investing simplicity to a higher cost way to invest. Vanguard may not do it, but more than a few somebodys will.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Scotttheking »

Soon2BXProgrammer wrote: Sat Dec 11, 2021 2:08 pm
UpperNwGuy wrote: Wed Dec 08, 2021 3:55 pm I don't get it. There are so many mutual funds already in existence that there must be a fund for everybody's tastes. Why would anyone want to endure the headaches of direct indexing?
I would do it if I could ACATS the biggest winners to my DAF. Currently none of the providers allow partial transfer and then rebalance slowly over time via dividends, other withdrawals, TLH, etc.
Same. That’s the killer feature. Wealthfront says it is on their backlog but no estimate for when. First one who gets it at a reasonable cost gets my business.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by Makefile »

nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
I wonder if ESG investing could someday mean picking the group that most matches your values from a list of groups to whom you can assign the voting rights to your shares, rather than the current model of "naughty" and "nice" companies to invest in.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by nedsaid »

Makefile wrote: Sat Dec 11, 2021 9:34 pm
nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
I wonder if ESG investing could someday mean picking the group that most matches your values from a list of groups to whom you can assign the voting rights to your shares, rather than the current model of "naughty" and "nice" companies to invest in.
Actually, I am learning a lot about ESG investing. Have done a lot of research. Not my style of investing but doing it as part of my job. It is very interesting, I think what you suggested above is being executed by fund groups such as Calvert, Pax, Praxis, etc. The fund companies vote the proxies according to ESG principles. Even Blackrock through its iShares is making a big commitment to ESG Investing. You will see more an more ESG products rolled out, even by mainstream mutual fund companies. Many fund companies already incorporate ESG concepts in their investment processes, American Century is a good example.

There is a 3rd Party manager that is accessed through Financial Advisors that surveys clients' ESG interests and will customize client portfolios accordingly. The questionnaire is actually fairly detailed. The stronger ESG commitment that an investment product has, the more expensive these products tend to be. I suppose if you were worried about blind penguins in Antarctica, there is probably a fund for that. :wink: iShares does have ESG ETFs with low expense ratios and based upon an index. Calvert, oddly enough has good ESG Index funds with relatively low expense ratios. Vanguard has started with ESG Index products and you will see more from them in the future.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by slowandsteadywins »

I really like Wealthfront's available US Direct Indexing for tax loss harvesting benefits for taxable accounts.
However, my main concern is portability and managing the individual stocks at an alternative brokerage.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by shess »

Makefile wrote: Sat Dec 11, 2021 9:34 pm
nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
I wonder if ESG investing could someday mean picking the group that most matches your values from a list of groups to whom you can assign the voting rights to your shares, rather than the current model of "naughty" and "nice" companies to invest in.
This is where I think things should go. Right now, groups attempt to tie the values idea into managing the assets, which seems like an unlikely combination of talents (in the limit, I would NOT trust my church to do an effective job directly managing a portfolio). In fact, I'd guess in most cases the values position is a marketing ploy to get assets under management. If we had an ability to assign voting proxies, a mutual fund or ETF could batch the top-level preferences and pass those through to the individual proxy votes, which wouldn't seem to be much worse than what already happens with brokerages tracking your shares in street name for voting. In theory it could also apply through other interfaces, like through a target-retirement fund to the underlying components, then through the component indices, then even through things like REITs.

OF COURSE it would be abused. Whatever, that's the world we live in, it's not a choice between abuse or no-abuse, it's selecting what level of abuse to suffer from.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by retire2022 »

Op

I heard one could create your own index fund and exclude stocks one have issues with off the rack passive funds like VTI/VTSAX instead you could use M1 finance.

I don’t have personal experience using M1 but I read it is possible.

Here are steps to create one:

https://support.m1finance.com/hc/en-us/ ... stom-Pies-

Have you looked into this or aware of?
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by finite_difference »

nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
Vanguard could digitally archive all of that information for us and make it easy to vote on the matters we care about. We could fill out a form and have them vote for us automatically according to our wishes. That would not be hard to do. Instead, we indexers are completely stripped of our voice.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by ArmchairArchitect »

finite_difference wrote: Sun Dec 12, 2021 6:46 pm
nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
Vanguard could digitally archive all of that information for us and make it easy to vote on the matters we care about. We could fill out a form and have them vote for us automatically according to our wishes. That would not be hard to do. Instead, we indexers are completely stripped of our voice.
I agree with this 100%. How do Vanguard investors/Bogleheads voice their feedback to Vanguard? We should give this idea momentum.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by pokebowl »

nedsaid wrote: Sat Dec 11, 2021 2:13 pm

Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
I would like the option yes. I don't have to act on all 3000+, but I would like the choice to vote on certain issues of interest to me. Voting rights must matter otherwise activist funds such as the ETF "VOTE", which attempt to target companies this way wouldn't exist.
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by finite_difference »

ArmchairArchitect wrote: Mon Dec 13, 2021 1:09 pm
finite_difference wrote: Sun Dec 12, 2021 6:46 pm
nedsaid wrote: Sat Dec 11, 2021 2:13 pm
finite_difference wrote: Fri Dec 10, 2021 5:43 pm
Great point. I do want my voting rights. I am a quite annoyed that I give up my voting rights with indexing.
Do you really want to vote 3,600 or so proxies for all the holdings of Vanguard Total Stock Market Index? Do you want to haul 3,600 annual reports to the recycle bin every year? I own almost 25 stocks individually, before most of this stuff went electronic, I got an immense amount of mail just from a relative smaller group of stocks. Just think of getting 3,600 messages in your e-mail inbox.
Vanguard could digitally archive all of that information for us and make it easy to vote on the matters we care about. We could fill out a form and have them vote for us automatically according to our wishes. That would not be hard to do. Instead, we indexers are completely stripped of our voice.
I agree with this 100%. How do Vanguard investors/Bogleheads voice their feedback to Vanguard? We should give this idea momentum.
Good question.

I also wonder if someone ever asked Bogle about this issue.

I am quite surprised that a Silicon Valley firm wouldn’t want to take this on though. Let your users purchase ETFs as normal, but then add a service for a few basis points to let the users vote according to their fractional ownership. Probably not enough money in it to be worthwhile. And if you have half your users want A and half want B, might tend to cancel things out. Still, would be a nice service to have, and avoids having a mass of votes that are just thrown in the garbage.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: When will Vanguard's Direct Indexing be Available to Retail Investors?

Post by tman9999 »

Based on the info on their site here https://advisors.vanguard.com/investmen ... T:INDEX:XX
it looks to me like they're pitching this to advisors, not retail investors.

After reading up on what exactly it does, I'm not seeing anything that I'm not already achieving through a combination of features my robo already does (TLH, AA target maintenance, tax-efficient asset location) and what I augment that with via my master spreadsheet, which I use to balance around specific asset holdings that tilt my portfolio.
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