Transcript:
Easan Arulanantham:
What are your thoughts on direct indexing versus, you know, just using the index funds like a VTI or VTO?
Tom Vaughan:
yeah, so direct indexing is where you’d make your own index, there’s some companies that you can go to and say, hey, I want to make this index, probably more appropriate for somebody like us as money managers. To do that, and package together, let’s say I want to make a semiconductor index with just eight stocks, I don’t want to have some of these other stocks that didn’t like as much. And so instead of buying so xx, which I think is 35, stocks, I’m going to make one out of eight, I’m gonna make a more narrow piece. And so I could put those together and make my own index, and then buy it as a basket altogether within these companies. Maybe I’m really interested in very strict social, you know, ESG, type, concept, environmental, social, and governance. And I really, really want to have just the specific companies and it could be a fair number 50, or what have you, that I think are doing it, right. And I don’t want to own some of these other ones that I don’t like as much. It allows you some personalization over that particular index, and you put that together as one block, and you can buy say that 50, at once, basically through these different companies.
So I think it’s really interesting, although it’s fairly complicated, there’s a lot of little transactions that happen, the paperwork, part of it is kind of fascinating, we’ve never pursued it, I’ve looked at it several times, I think it’s still a little bit in its infancy, when it gets a little bit cleaner and better. Something I probably look at actually, having said that, it’s awfully easy to just buy these other indexes. So, you know, you go and you buy Vanguard Total Stock Market Index, the VTI, or the Vanguard, you know, S&P 500, index vivo, or, you know, these types of things, you’re getting a package deal already, might not meet all your criteria, but it’s a lot easier. But direct indexing is, I think it’s going to be a big thing. And more and more, you’re going to see people like me making direct indexes that I’ll use within my practice, or even offer to others. You know, as far as that goes, so somebody else can just go by that in that package that I’ve made. So there’s there’s several different things like that, that are happening now. But, you know, we haven’t delved into it yet. But it’s a good question.
Easan Arulanantham:
Yeah, in direct indexing is a lot about how much time are you willing to put in because you have to make this index yourself. And you have to know how in depth you’re going to screen each company that you’re going to input into your index? It’s, it’s a lot, it’s a lot of work if you’re wanting to do it. But if it’s interesting to you, then you know, I would look into it.
Tom Vaughan:
Yeah, yeah. And you can mean pick a category and, you know, the broader indexes of say, cybersecurity, well, if you really look at everything that’s in there, maybe you don’t want them all, you know, they’re buying everything that has cybersecurity attached to it, that’s fine. That’s a good index. But maybe you just want these seven or 10 Because you really believe in them, or maybe you’re in the business and you know, what you’re looking at, or whatever it is. And so you can make sense of buying seven or 10 of them, or 20 of them and have them all over your statement. You make one package, you know, direct index that you can purchase, you know, as one group and basically make your own, you know, index, it’s just it’s pretty cool. Again, it’s not that easy to do yet, but that’s that’s coming that’s going to become a batch in five or 10 years. We’re talking a lot more about that.