Generate Better After-Tax Returns with Direct Indexing

Learn why direct indexing with a separately managed account (SMA) is more tax-efficient than an index fund or ETF.

Kevin Maeda, Chief Investment Officer of Active Index Advisors®, explains the tax differences between index funds, ETFs, and separately managed accounts.

  • While index mutual funds and ETFs are reasonably tax-efficient, investors must still pay taxes on their dividends and periodic capital gain distributions.
  • For tax-sensitive investors, there’s another way to index, using a separately managed account, also known as an SMA.
  • With a direct indexing SMA, investors have the potential for higher returns after taxes, because they own the stocks directly.
  • This means any losses in the portfolio can be used to offset taxable gains, so investors can keep more of their investment earnings after taxes.
Separately managed accounts (SMAs) are investment portfolios owned by an investor and managed by a professional investment firm.

All investing involves risk, including the risk of loss.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

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