Investing isn’t what it used to be, especially for wealthy folks who want more say in how their money works. They want better tax results, more control, and portfolios that actually fit their goals—not just some out-of-the-box solution. In 2026, many high-net-worth investors are ditching traditional ETFs in favor of direct indexing. They like the flexibility, the tax perks, and the chance to build something that really feels like theirs.
Now, let’s get into why direct indexing is getting so much attention, how it compares to ETFs, and why it lines up with what wealthier investors want right now.
Instead of just buying a fund that copies an index, you actually own the individual stocks yourself. Instead, you actually own all the individual stocks in that index—sometimes hundreds of them—weighted to match the index exactly.
It’s not something you do by hand; this usually happens through separately managed accounts, or SMAs, where pros take care of the details and tweak the holdings to fit what you want. That’s why direct indexing is increasingly featured in conversations about modern wealth management.
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ETFs had their moment. They’re simple, cheap, and give you easy diversification. But for people with more money—and more complex needs—ETFs can feel a little too off-the-rack. You can’t just kick out a stock you don’t like, tweak the weights, or manage taxes on each holding.
Direct indexing fixes that. Investors get more control, more options. So, it’s no surprise that a lot of high-net-worth folks are moving away from ETFs and turning to custom indexes. Sure, ETFs still work for plenty of people—but for advanced strategies, they just don’t cut it anymore.
Here’s a big reason for the shift: personalization. Wealthy investors usually have a list of unique goals, values, and tax issues. A plain ETF can’t cover all of that.
Direct indexing lets you do things like cut out industries you don’t want, lean into sectors you like, or match your investments to your beliefs. With a personalized portfolio, your investments actually feel like your own, not just numbers on a statement. And honestly, by 2026, personalization isn’t just a nice-to-have anymore—it’s what people expect.
Taxes are a huge deal for people in higher brackets. One of the best things about direct indexing is how it makes tax-loss harvesting easy—and valuable.
Since you hold all the stocks individually, you can sell losers throughout the year to offset gains elsewhere. That can bring your tax bill down in a big way. Try that with an ETF, and you’ll see just how limited your options are.
For wealthy investors, these tax savings add up. That’s a big reason direct indexing is replacing ETFs in so many portfolios.
SMA investing is what makes direct indexing possible. In an SMA, you actually own each stock, and a professional team manages the day-to-day for you. This setup means managers can fine-tune your portfolio for taxes, market changes, and your preferences.
And as tech keeps getting better, SMAs are more accessible than ever. That means more investors can build a custom index without jumping through hoops.
Custom index investing is just what it sounds like. You track a broad index, but you change it to fit your goals. Maybe you want to take out certain companies, shift the sector mix, or manage risk differently.
Direct indexing is what makes this possible. You’re not stuck with a one-size-fits-all ETF. You get to shape your own index. For investors with big portfolios and long-term plans, this flexibility means even small improvements can turn into real gains. That’s why custom index investing is getting so much attention right now.
Not that long ago, direct indexing was something only the ultra-wealthy could afford. It was pricey and pretty exclusive. Fast forward to 2026, and things look different. Thanks to better technology and a lot more competition, costs have dropped a lot.
Sure, direct indexing still costs a bit more than just buying basic ETFs. But the perks—especially tax-loss harvesting and the ability to build a portfolio that actually matches your needs—make those extra fees worth it for many investors. After taxes, people often end up ahead.
This drop in cost has put SMA investing within reach for a wider group of high-net-worth investors. It’s not just for the super-rich anymore.
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Risk management is where direct indexing really shines. With ETFs, you’re stuck with whatever risk profile the fund manager picked. With direct indexing, you get to fine-tune things.
Managers can cut back on certain stocks, tweak their portfolio more often, and adjust things as their financial life changes. This kind of hands-on approach really helps if you want more stability or you’re focused on growing your money over the long haul.
A lot of investors want their money to reflect what matters to them. The problem? ETFs often include companies you might not want to support. Direct indexing lets you actually align your investments with your values.
With custom indexing, you can leave out entire industries or put more focus on sustainability—whatever fits your beliefs. You don’t have to sacrifice diversification, either. You get both financial performance and personal satisfaction.
Tech moves fast these days. Now, with automation and smart data tools, platforms can juggle hundreds of stocks all at once. Direct indexing isn’t just for a handful of investors anymore—it works for a lot more people.
Tax optimization, rebalancing, reporting? The system takes care of all that, fast and on point. All this makes SMA investing smoother and more appealing, especially for folks who want efficiency and control.
Direct indexing makes the most sense for people with bigger portfolios and more complicated tax situations. If you’ve got a lot to invest and want to make the most of tax-loss harvesting and customization, this is where you’ll see the biggest benefits.
High-net-worth investors usually want a portfolio that’s tailored to them—not just a cookie-cutter fund. Direct indexing fits perfectly with long-term plans, estate strategies, and goals around preserving wealth.
ETFs are still great for simplicity and low fees. But they don’t offer much flexibility. Direct indexing gives you more control, better tax outcomes, and you can actually see everything you own.
By 2026, a lot of investors will use both. ETFs still have their place, but for many wealthy investors, direct indexing (through SMAs) is now the centerpiece of their portfolio.
As expectations go up, people want more customization and better tax efficiency. Custom index investing isn’t just a niche anymore—it’s going mainstream for wealthy investors.
When you put together personalized portfolios, smart technology, and strong tax-loss harvesting, direct indexing becomes a really powerful option for the future.
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Direct indexing is undoubtedly on the verge of overtaking traditional ETFs as the preferred choice of investment for high-net-worth investment strategies in 2026. This shift has been triggered by various reasons, such as the desire for personalized portfolios, new and enhanced tax-loss harvesting benefits, and the demand for greater control.
Direct indexing is essentially the future of investing for those who value flexibility, transparency, and overall tax effectiveness over the long run.
Direct indexing strategy is simply a method of investing in an index by purchasing all individual stocks that compose the index instead of purchasing a single ETF that tracks the index.
Among other things, a direct indexing strategy highly facilitates tax loss harvesting, which means that investors can benefit from such losses at the level of individual stocks.
In the beginning, SMA investing was mainly targeted at high, net, worth individuals, but by 2026, thanks to the reduction of costs, it has become more accessible to a wider range of people.
Direct indexing is replacing ETFs for many high-net-worth investment strategies; however, even some investors still employ both methods simultaneously.
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