It has been more than 6 months since I invested $100,000 into a Direct Index that tracks the S&P 500. I share how it went and why I decided to add another $74,000.
I have the same question as Javier. How did Frec perform during the turbulent times of the last few days? Did it panic or remain composed and seized the opportunity?
I added another $25,000 on April 2nd and 4th. It has def been active harvesting losses. With the following breakdown:
April 3: $272
April 4: $1,168
April 7: $398
April 8: $26
April 10: $143
It sold off nearly all the NVDA and Google holdings. So I am watching to see how that impacts the drift from the index. Should even out (wins and losses) overtime, but those are some big heavy market cap companies.
Great article. Andre, Regarding some of your concerns, I wonder how Frec is doing now (April 2025) when the stock market is down in general. Are they selling most of the biggest company positions to harvest losses and finding new ones to replace? Super curious
I added another $25,000 on April 2nd and 4th. It has def been active harvesting losses. With the following breakdown:
April 3: $272
April 4: $1,168
April 7: $398
April 8: $26
April 10: $143
It sold off nearly all the NVDA and Google holdings. So I am watching to see how that impacts the drift from the index. Should even out (wins and losses) overtime, but those are some big heavy market cap companies.
Andre, how do you feel about the lock-in effect? With the lower cost basis, I assume TLH will saturate fast unless you continue infusing cash. Then you are stuck in Frec with a higher fee than index funds and expensive (tax wise) exit strategy? Wonder about your thoughts on this as well. Thanks!
It is really important to factor in! That was my biggest hesitation to doing direct indexing prior.
The fees are so much lower now that it isn’t as big an issue as it was before (still a factor though). You can also easily ACAT transfer the shares out after they no longer have any juice.
It shouldn't be a problem. All the data is summarized in the 1099 consolidated so you don't need to enter every transaction! That would be rough! I just received my 1099 and it is 239 pages, i'll let you know if I end up with any issues going through turbotax.
The attempt at calculating the "after-tax alpha" was my attempt to answer this very question. It includes all fees, portfolio drift, and comparison against VOO performance.
Is there any benefit to this if you're already claiming a $3,000 loss every year? If you're an index investor you shouldn't have any significant gains to offset.
In that case you could think about it from the perspective of deferring your taxes into the future.
If you are harvesting losses, when you start withdrawing, you will end up with less taxes in the direct index portfolio in the beginning (due to the losses offsetting gains).
Some of this benefit will get largely eaten up when you finish withdrawing the entire balance (unless you die and your heirs get stepped up basis).
If there were individual stocks you want to trade, I would probably exclude them from the index. The index wouldn’t be aware of your other positions and could cause issues.
Alternatively, you might be able to roll your individual positions into an index.
I don’t personally trade or hold individual securities (other than some Uber from my wife’s job).
I have the same question as Javier. How did Frec perform during the turbulent times of the last few days? Did it panic or remain composed and seized the opportunity?
I added another $25,000 on April 2nd and 4th. It has def been active harvesting losses. With the following breakdown:
April 3: $272
April 4: $1,168
April 7: $398
April 8: $26
April 10: $143
It sold off nearly all the NVDA and Google holdings. So I am watching to see how that impacts the drift from the index. Should even out (wins and losses) overtime, but those are some big heavy market cap companies.
Great article. Andre, Regarding some of your concerns, I wonder how Frec is doing now (April 2025) when the stock market is down in general. Are they selling most of the biggest company positions to harvest losses and finding new ones to replace? Super curious
I added another $25,000 on April 2nd and 4th. It has def been active harvesting losses. With the following breakdown:
April 3: $272
April 4: $1,168
April 7: $398
April 8: $26
April 10: $143
It sold off nearly all the NVDA and Google holdings. So I am watching to see how that impacts the drift from the index. Should even out (wins and losses) overtime, but those are some big heavy market cap companies.
Andre, how do you feel about the lock-in effect? With the lower cost basis, I assume TLH will saturate fast unless you continue infusing cash. Then you are stuck in Frec with a higher fee than index funds and expensive (tax wise) exit strategy? Wonder about your thoughts on this as well. Thanks!
It is really important to factor in! That was my biggest hesitation to doing direct indexing prior.
The fees are so much lower now that it isn’t as big an issue as it was before (still a factor though). You can also easily ACAT transfer the shares out after they no longer have any juice.
So the fee doesn’t need to be forever, but you do have added complexity which was my bigger concern. I touched on these aspects in the first post (I also plan on an update soon): https://andrenader.substack.com/p/direct-indexing-tax-loss-harvesting?r=8tqoq&utm_medium=ios
Very intriguing. I would love to hear your 2024 tax filing experiences with Frec in the picture.
The process has been painless. The 1099 is 239 pages, but you only need the summary details.
Cool. My next vesting to coming up and I look forward to sell it all and move into Frec.
Andre, how do you manage tax filing when the total number of transactions exceeds 10,000?
It shouldn't be a problem. All the data is summarized in the 1099 consolidated so you don't need to enter every transaction! That would be rough! I just received my 1099 and it is 239 pages, i'll let you know if I end up with any issues going through turbotax.
Andre, I didn't see this clearly, but if you had invested in the same index as a baseline outside of Frec, is it still ROI positive net of fees (1%?)
I know you excluded uber so it's not very apples to apples. But the goal is always +positive gains in comparison to baseline inclusive of all fees.
The fee is 0.1% not 1%!!
The attempt at calculating the "after-tax alpha" was my attempt to answer this very question. It includes all fees, portfolio drift, and comparison against VOO performance.
Is there any benefit to this if you're already claiming a $3,000 loss every year? If you're an index investor you shouldn't have any significant gains to offset.
In that case you could think about it from the perspective of deferring your taxes into the future.
If you are harvesting losses, when you start withdrawing, you will end up with less taxes in the direct index portfolio in the beginning (due to the losses offsetting gains).
Some of this benefit will get largely eaten up when you finish withdrawing the entire balance (unless you die and your heirs get stepped up basis).
Having Frec tracking Total Index, would that now mean you can't trade all those individual stocks on other trading platforms/accounts?
If there were individual stocks you want to trade, I would probably exclude them from the index. The index wouldn’t be aware of your other positions and could cause issues.
Alternatively, you might be able to roll your individual positions into an index.
I don’t personally trade or hold individual securities (other than some Uber from my wife’s job).