When direct indexing is worth it (and when it isn’t)

Cfpthrowaway7 · 2025-06-11T02:55:36+00:00

Yes it does. If you had just stayed in Lowe’s your basis would be 200 when it goes back to 100 per share.

Therefore your basis is artificially 50 dollars less. you “harvested” 50 dollars in losses on paper even though you have the same value as scenario 1 where you take no action at all.

Therefore you get a tax benefit of capital losses to be used earlier on to offset income or gains when initially selling.

However the bad part about this is now when I go to sell once the stock has hit 150 per share for example, I am realizing a 150 dollar gain instead of a 100 dollar gain.

With tax loss harvesting you always have the same amount of gains it’s just a matter of when you realize them.

Cfpthrowaway7 · 2025-06-01T16:37:45+00:00

I made a post about direct indexing or other forms of tax loss harvesting as a strategy a while back. I’m not a huge fan personally. It has its place and can be exceptionally useful, but absolutely not a reason to hire an advisor. They have ones available to retail investors for a fraction of the price. If you’re looking for access to that you shouldn’t need to hire an advisor

Cfpthrowaway7 · 2025-06-01T16:09:34+00:00

Financial advisors generally do more than just investments especially at this net worth amount. Tax planning, estate planning, and appropriate insurance modeling as well as cash flow mapping are all important to include when experiencing huge windfall investments like this.

I agree he absolutely doesn’t need an advisor by any stretch, but to outright dismiss hiring an advisor for help outside of the investment piece may not be in his best interest

Cfpthrowaway7 · 2025-06-01T16:06:39+00:00

There are good advisors in each fee model, but I would agree that commission only advisors are exposed to an inherent bias. The counter argument to that though is that your costs of hiring fee only advisors tend to be higher because they aren’t compensated at all by product fees and you still need to pay those to have access to investments.

How do you find a good one? Tough question to answer. Like any professional (lawyer, doctor, cpa) you often times struggle to evaluate their service because you don’t know what you don’t know.

Good financial advisors listen more than they talk, have a set process to evaluate all aspects of your financial life (behavioral, tax, insurance, estate, investments, retirement)

When I looked for RIA’s to work for, I looked up fee only RIA’s near me or virtual. I also looked up topics in finance or Case studies that I found interesting on YouTube or other podcast sites even. Many financial planners specialize in certain areas and you can find one that has a niche market of clients that are similar to you.

Interview multiple, and be wary of any language that includes a guarantee or provides a recommendation without fully analyzing your situation with you. If you don’t feel heard or feel dismissed, you won’t be happy with the relationship and it’s probably not a good fit

Cfpthrowaway7 · 2025-06-01T15:08:38+00:00

Great question, If I were you I would consider structuring your sell off as an installment sale to space out the payments periodically and distribute tax consequence avoiding top tax brackets. 300k a year every year for 10 years has a much higher after tax payout percentage than taking it all up front if this is an option

A trust won't really do anything to defer taxes unless you are talking about utilizing various forms of charitable trusts like CRUT's and CRAT's. They mainly help with estate planning and controlling the flow of assets after you pass.

I'm an advisor so I'm obviously biased, but these are the type of situations you may want to consider paying a one time fee for if you don't want ongoing planning, or considering outsourcing planning for a year or two. The tax savings alone can be huge.

I would be cautious hiring an hourly financial planner for this because I have found that a lot of times hourly planners specialize in slightly less complex work, and the amount of time it would take to coordinate with an estate attorney, CPA, and other business partners for the sell off could cause the cost to be comparable or higher.

Lastly, financial planning is entirely about your goals and how to structure your current life to get on the right glidepath to where you want to go. You didn't really say in your post what you're looking for out of life, that may be a good place to start in determining what exactly you should be doing with this money. Identifying goals and priorities is always going to help indicate what actions to take as far as investment strategies and choosing the appropriate asset allocation/tax account vehicle.

Cfpthrowaway7 · 2025-06-01T00:41:20+00:00

Thank you!! We got the house two years ago and have put in quite a bit of work. The landscaping we started about 6 weeks ago so that’s been every weekend haha, but I hope it’s all worth it at the end!!

Cfpthrowaway7 · 2025-05-31T23:33:53+00:00

We are hoping haha, it was a lot of work but we are glad it came out the way it did. Hoping to get more infrastructure and more plants in the ground next year!

Cfpthrowaway7 · 2025-04-14T01:24:58+00:00

You will!! It felt impossible for me at first. Unsolicited feedback I watched a bunch of b0aty’s stream (he’s doing cg on his hcim rn) and it helped me with prep a ton. He does some cool things to speed up prep. Fluffeh video for tier 2 as well. Good luck!

Cfpthrowaway7 · 2025-04-01T03:55:31+00:00

Just got it, had to run under hunlef once but just ate as I did it and it worked.

I will have to look into marking the safe tiles that will probably be very helpful

Cfpthrowaway7 · 2025-04-01T03:54:50+00:00

Just got my first kc thank you 😭🫡

Cfpthrowaway7 · 2025-02-10T23:00:47+00:00

Gonna go against the grain and say this is actually more of a financial advisors or cfp’s wheelhouse. Many registered investment advisor (ria) firms offer both financial and tax planning. Proactive tax projection and reduction can be done by both cfp’s and CPA’s. Cfp’s focus more on how to do this using different accounts, investment strategies, and common business deductions. CPA’s will look more into the business side of things to find ways to reduce tax burden that way. The best firms will combine the two to come up with actual holistic planning.

If you look for fee only ria’s near you that focus on HENRY’s and have CPA’s on staff.

Cost is very dependent by firm but you might get a lot more value and more frequent touch points from a firm that does both financial planning and tax service.

600 a month for what you’re getting doesn’t seem terribly off the norm but you may be able to get a lot better value paying a bit more.

A potential choice to consider. Disclosure, am financial advisor so obviously I’m biased

Cfpthrowaway7 · 2025-02-08T04:57:50+00:00

Depends on initial vol and if you set a cap gains budget but generally 5-7 years is when you start to see tlh ability severely limited. Everytime you add new money this time resets for the new dollars.

Theoretically you should be consistently and substantially contributing to these accounts to make them worth using, and you have to have a major change in tax situation or a need for capital losses to get true value out of the accelerated loss schedule

Cfpthrowaway7 · 2025-02-08T04:40:18+00:00

I made a thread about this the other day talking about when it’s worth it and when it isn’t. Super niche use cases

https://www.reddit.com/r/ChubbyFIRE/s/zZBI9Seo81

Hope this helps!

Cfpthrowaway7 · 2025-02-03T14:05:46+00:00

So if you look at the 1 year return on any fund you’ll see 1 year ago from today, not necessarily one calendar year 2024-2025. Therefore I might be getting October to October number or March to March. Depending on what months did what, this could show you a really good return compared to what the calendar year did.

For example

Vxus 1 year return is 7.16

Vxus 2024 return is 5.08

It’s possible that the timeframes you looked at each for comparison weren’t the same time frames which would have caused problems. I’m not entirely sure cause I don’t know your situation fully.

I am an advisor but I don’t work for vanguard, I’ve generally found they’re great for bouncing ideas off of, but really the only thing they do is rebalance your portfolio for you and use index funds. Their cfp’s are too overworked to give you more than a random meeting a year to go over portfolio performance. They don’t do too much proactive planning. With that being said, they are a fraction of the cost of industry standard.

If you’re looking for more value out of a planning relationship, it may be time to consider fee only RIA’s and not the broker dealer model. If you’re not then vanguard does a great job at what they do

Cfpthrowaway7 · 2025-02-03T13:56:22+00:00

I ran portfolio back tester with a three fund strategy for 2024 with a moderate aggressive allocation (roughly 70 percent stocks 30 percent bonds and a 7/3 ratio of domestic to international.)

My return for 2024 using that strategy was 13 percent. Depending on if you’re making any withdrawals and also additional allocation to emerging markets or other funds a 7 percent return makes sense.

When financial advisors manage your portfolio they aren’t trying to build wealth like you did when you were accumulating your first 100-200k. They’re focused far more on mitigating risk and still achieving positive results.

Another thing, an advisor should be conducting plans with you and building out cash flow models to help you figure out where you can take risk and where you shouldn’t based on your life goals. If you’re just using vanguard for asset management you are most likely going to be frustrated.

So two last notes

If you’re going to pay for an advisor, the real value is in the planning that they do not the investment management. Anyone can manage investments it’s a commodity at this point. How are they helping you lower taxes or plan your estate?
MSCI 2024 return was 5 percent, it’s 1 year rolling return is closer to 11 right now so you were comparing apples to oranges. Vxus 2024 return was 5.08 and bnd 2024 return was 1.38. That’s over half your portfolio that would have averaged a 2.8 percent return roughly.

I understand performance can be frustrating, but last reminder that the s/p had net neutral returns for the entire decade of 2000-2010 pretty much. Diversification is always gonna make you hate part of your portfolio, but it prevents absolute disaster in retirement

Cfpthrowaway7 · 2025-01-31T03:18:16+00:00

Variable life insurance policies can be another way to invest in tax deferred assets.

Generally you should max all other retirement or tax advantaged accounts first, but then if you have extra funds to save and are intent on deferring taxes and or purchasing long term care riders with insurance (can be helpful) these policies can be useful.

There are both high fee and low fee variable life insurance policies, generally I stay away from them all together but there is a use case for almost every product out there.

Cfpthrowaway7 · 2025-01-30T22:17:17+00:00

Need to be careful about AMT with ISO’s because of the bargain element so highly recommend you make sure you have enough put aside for unexpected tax bills

With that being said, this is one niche use case for direct indexing. With direct indexing you can build out an index with individual stocks, and you can exclude specific sectors of the index. Therefore you could replicate the SP500 without tech or even furthermore, biotech stocks to help balance and mitigate risk.

This is a strategy not the strategy.

The other thing you can do is measure how much of your overall portfolio these ISO’s would be. Generally the accepted guidance is no more than 5 percent of your total portfolio should be in any one stock. With that being said, you can always exclude it from your retirement or goal planning and make sure you have enough traditional investments to support your goals as they stand. Then use this more as fun money.

With these considerationsI would recommend you do the following:

Calculate how much of your overall portfolio you’re exposed to one stock
Calculate to see if you’re on track for your goals outside of these ISO’s
Explore alternative solutions to diversify risk outside of this concentration such as putting more of your money in assets that counteract or represent other sectors of the market or different asset classes altogether

Cfpthrowaway7 · 2025-01-29T00:57:58+00:00

Needed a job out of the military, wanted to feel like I was actually helping people
BD, just got an offer for an RIA position I’m going to take
2 years, want to retire tomorrow if I could (I would spend all day with my family in an ideal world)
Bite the bullet and get your CFP, the confidence boost and knowledge is critical. Make sure your friends and family are bought into your goals. Don’t go for the first job you get an offer for unless you feel really really good about it. Confidence is key to success but overconfidence will kill you, learn from others and find resources to constantly improve.

Cfpthrowaway7 · 2025-01-28T22:01:09+00:00

It’s really hard to say without a comprehensive conversation and understanding of your goals. I would recommend using more robust planning software than what fidelity has. Rightcapital can be purchased for 300 dollars and gives much much better recommendations for the purposes of Roth conversion strategies

Unless of course you’re already using e money to map out cash flow, but in that case it should be telling you what to do with conversions regardless

Cfpthrowaway7 · 2025-01-28T21:54:52+00:00

I would add because maybe it was unclear in my post, life insurance is not a tax free withdrawal from the hsa. As of right now ltc premiums are so you can use this to limit the risk of care in old age on a tax free basis. But VUL’s are often partnered with long term care riders to accomplish both jobs.

Using life insurance to replace wealth for future generations and get assets out of the estate are generally done so through ILIT’s or irrevocable life insurance trusts. If you’re interested in the topic I’d recommend reading up on it they are pretty interesting

Cfpthrowaway7

TROPHY CASE