Fallows: Direct indexing generates tax losses to offset concentrated position gains
Tad Fallows · Why Half of Them Have No Mortgage and Still Win · Dec 30, 2025 · at 27:49
Wealth strategist Tad Fallows explains how direct indexing can be used for systematic tax-loss harvesting to unwind large concentrated equity positions.
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“A third option is what's called direct indexing. And indexing, as I'm sure you're familiar, is basically, if you want to own the S&P 500, you're getting exposure to 500 companies, as is in the name, or the FTSE 100 in England's roughly a hundred companies. Now, direct indexing is rather than buying just a portfolio from Vanguard, you actually directly buy every one of those 500 shares. And I might say, well, that seems like a lot of complexity for no real point. But the value of that becomes, today I buy 500 shares, but then just the nature of the markets, some will go up and some will go down. So let's say Exxon goes up and Chevron goes down. They are going to be highly correlated, but what happens is you can sell your Chevron shares and recognize a loss on Chevron, and then buy Exxon shares in their place. So your portfolio returns won't really change because in the future when Exxon goes up, Chevron's going to go up at the same pace. So you'll get the same long-term returns, but you're able, as you go, to continually sort of recognize and lock in these gains, and you can use that to then offset the gains that you're making when you sell your concentrated position. So over a course of several years, you're able to make those sales and deconcentrate your position and basically manufacture offsetting losses so you don't have a big tax bill along the way.”
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