Use the calculator below to compare the scenarios where you invest in an ETF vs. using Direct Indexing (e.g. buying then individual stocks and periodically rebalancing).

ETFs are cheap, but not free

ETFs fees are usually pretty low. But low doesn’t mean zero, and over long holding periods even small annual costs can translate into meaningful dollars.

Fees reduce your return every year, and that reduction compounds. Paying an extra 0.20% annually isn’t just 0.20% once - it’s 0.20% on your balance year after year, including on the growth you would otherwise have earned.

The annual cost grows as the portfolio grows, even if the percentage stays the same. Over decades, the difference between two “small” fees can become large because of compounding on a larger base.

Direct Indexing can be more cost-efficient

Direct Indexing is owning the individual stocks that make up an index (or a representative subset) rather than buying an ETF that holds them.

With direct indexing, you avoid ETF management fees, but incur the the costs of periodically rebalancing to ensure your holdings track the underlying index.

This can be attractive for larger investments:

• Rebalancing costs likely don’t scale linearly: cost is a function of how many trades you make and as your portfolio grows each trade will be larger and more efficient.
• Low-commission brokers make rebalance affordable: a low cost broker could charge $0.01 per share for large trades.

However, there are some trade-offs of Direct Investing to be aware of:

• Complexity of owning multiple stocks: holding dozens or hundreds of stocks means more operational overhead (corporate actions, delistings, index changes).
• Tracking the index can be difficult: if you track the index poorly, or don't react to changes quickly, and gains from not paying management fees can be eaten away.
• Rebalancing is not free: even with zero commission, spreads and market impact exist, and frequent changes in the underlying index can can add to the rebalancing costs.

IndexedAlpha can help save you money with Direct Indexing

• Rebalance notifications: get notified you when rebalancing is needed to keep your portfolio aligned with the index.
• Configuration rebalance frequency: set the frequency of rebalancing based on your investment goals and risk tolerance.
• Flexible index tracking: define which index and methodology to track, exclude stocks you want to avoid.
• Use your existing low cost broker: no fees to transfer your holdings.

Disclaimer: This is for educational purposes only and not financial advice. Fees, taxes, and trading costs vary by investor, broker, and jurisdiction