Direct Indexing: How to Own Stocks Directly and Skip Fund Fees

When you invest in a direct indexing, a strategy where you buy individual stocks that mirror an index like the S&P 500 instead of buying an ETF or mutual fund. Also known as custom indexing, it gives you real ownership of each share—no middleman, no bundled fees, and full control over what you hold. This isn’t just for hedge funds anymore. With modern platforms, regular investors can now build personalized portfolios that match major indexes but with one big advantage: you decide exactly when to sell each stock to manage your taxes.

Direct indexing relates closely to ETFs, exchange-traded funds that bundle hundreds of stocks into one trade. Also known as index funds, ETFs are convenient but don’t let you pick and choose which holdings to sell for tax purposes. That’s where direct indexing shines. If a stock in your index drops hard, you can sell just that one to lock in a loss and offset gains elsewhere—something you can’t do with an ETF. It also connects to portfolio construction, how you build and balance your holdings to match your goals and risk tolerance. With direct indexing, you can exclude companies you disagree with (like tobacco or fossil fuels), overweight sectors you believe in, or adjust for dividends—all without buying a single mutual fund. And unlike robo-advisors that auto-rebalance using funds, direct indexing lets you use cash flows like dividends to gently nudge your portfolio back on track, cutting trading costs and taxes.

It’s not for everyone. You usually need $50,000 or more to make it cost-effective, and it takes more attention than just hitting ‘buy’ on an ETF. But if you care about taxes, ethics, or fine-tuning your exposure, it’s one of the smartest moves you can make. Below, you’ll find real breakdowns of how it works, how fees compare to ETFs, how to avoid common mistakes, and what platforms actually deliver on the promise. No fluff. Just what you need to know to decide if direct indexing fits your strategy.