Direct Indexing: A New Way to Personalize Investments

Can You Make Your Investment Portfolio Reflect Your Values?

Can You Make Your Investment Portfolio Reflect Your Values?

The financial world is not devoid of values, as evident from the protests across college campuses demanding divestment from certain investments. This movement for ethical investing is not new and has rather been a recurring theme from the 1970s and ’80s with topics like South Africa and climate change. The question arises: can individual investors align their portfolios with their values?

Financial Protest: A Personal Stand

Many investors are increasingly choosing to divest from stocks that conflict with their values. This decision is often deeply personal and related to how investing in certain companies makes them feel. This goes beyond just the Israel and Gaza issue and includes various corporate practices that they find disagreeable.

Direct Indexing: A Strategy to Align Investments with Values

Direct indexing is a strategy that is gaining traction among investors who desire to align their investments with their values. This approach allows for personalization of an index-like collection of investments. It gives the opportunity to exclude certain stocks from your portfolio while still owning all the other stocks that are part of the index you wish to mimic.

Accessibility of Direct Indexing

Direct indexing, once considered an investment strategy for the wealthy, is now accessible to a broader range of investors. Financial services companies like Fidelity and Frec offer direct indexing options with minimum investments as low as $5,000 and $20,000, respectively. However, fees and limits on the number of companies you can exclude may apply.

Industry Screens: A Curious Feature

Some direct indexing services provide the feature to screen out entire industries, or parts of them. This goes beyond the standard oil stocks exclusion. For instance, Aperio, a BlackRock-acquired direct indexing platform, offers a screen for investors who wish to avoid predatory lenders.

Personalized Investment Screens

Investors have the freedom to create personalized investment screens based on their values and concerns. This could range from concerns about customer mistreatment to issues around the war in Gaza. The fact that it’s becoming easier to personalize your portfolio is good news for ethically-conscious investors.

Final Thoughts

Living our values extends beyond our personal lives and into our financial decisions. The emergence of strategies like direct indexing allows investors to align their portfolios with their values. As this trend continues, ethical investing is set to become a significant force in the financial world.