When your Direct Index account is rebalanced, the system automatically reviews your holdings and makes trades designed to keep your portfolio aligned with the index you’ve chosen—while also looking for tax-efficient opportunities.
Here’s what happens:
1. Both your chosen frequency and cash flows trigger a rebalance
Rebalancing frequency is up to you
You can choose how often your account rebalances: Daily, Monthly, Quarterly, Yearly, or Never (Buy and Hold). More frequent rebalancing gives more chances for TLH, but can also increase trading activity. If you select never, rebalances will only trigger on your account from cash flows (see below).
Cash flows trigger rebalancing, too
Deposits, withdrawals, and dividends count as cash flows. Each one can trigger a rebalance and tax-loss harvesting (TLH), if enabled. For example, when you deposit money, it’s automatically invested across your portfolio at the next trading window. If TLH applies, the system may also look for opportunities to harvest losses with those trades.
Dividends are treated like new deposits and reinvested across your portfolio. Withdrawals are processed by generating cash to withdrawal, which also triggers a rebalance by selling holdings.
2. Your portfolio is adjusted toward your target allocations
The system compares your Direct Index portfolio to the index you’re tracking (for example, the S&P 500® ). When you rebalance, we buy and sell assets in your Index in a way that aims to keep your Direct Index’s overall performance aligned with the index you’re tracking, while also looking for opportunities to lower your taxes.
3. Tax-loss harvesting (TLH) may be applied
If you’ve set your rebalancing frequency to Daily, Monthly, Quarterly, or Yearly, tax-loss harvesting is automatically enabled. The system looks for stocks in your portfolio trading at a loss. If an opportunity exists, it may sell those shares and replace them with other stocks from the index. This helps lower your taxes while keeping your portfolio’s performance closely aligned with the benchmark.
If your rebalance frequency is set to “Buy and Hold”, TLH is turned off. In that case, cash flows are simply used to shift your portfolio composition closer to the index, without any tax considerations.
* TLH will begin taking place 14 days after the creation of your Direct Index.
An important note - your holdings may not always match the full index.
To create flexibility for TLH, your portfolio may hold fewer stocks than the full index at any given time. For example, in a 100-stock index, your portfolio might hold 80 positions. If one stock is sold to harvest a loss, the system can use the proceeds to add one of the “on deck” stocks from the index.
Any reference to securities, indexes, or strategies in this communication is for informational and illustrative purposes only, and should not be construed as investment or tax advice.
Investment advisory services for Direct Index Accounts (“DI Accounts”) are provided by Public Advisors LLC, an SEC-registered investment adviser, and brokerage services are provided by Open to the Public Investing, Inc., member FINRA / SIPC. Public Advisors and Public Investing are affiliates, and both charge fees for their respective services. Before investing, consider your investment objectives, all fees and expenses, and any potential conflicts of interest. For more details, see Public Advisors’ Firm Brochure, Form CRS, and Fee Schedule.
Your DI Account’s composition and performance may deviate from the benchmark index due to tracking error, market conditions, the frequency of rebalancing and tax loss harvesting, and any portfolio customizations. Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with management of a DI Account. See additional disclosures.
Tax-loss harvesting (“TLH”) occurs whenever your DI Account rebalances or experiences a cash inflow or outflow. In order to opt out of TLH, you must set your rebalancing schedule to “None.” The ability of TLH to reduce tax liability is not guaranteed and will depend on your entire tax and investment profile. The performance of replacement stocks purchased through TLH may be worse than the securities sold, and TLH may cause the composition and performance of your portfolio to deviate from the benchmark index. Learn more about additional TLH risks. Public Advisors does not provide tax advice or assume liability for tax consequences of client transactions.
Any S&P index (“S&P Index”) referenced in this communication is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Public Holdings. S&P® and S&P 500® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Public Holdings. Public Advisors’ Direct Indexing products are not sponsored or, sold by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of any S&P Index.