How Direct Indexing Helps Business Owners Cut Taxes and Build Wealth
When you’ve spent years building a business, the last thing you want is to see your hard-earned wealth eroded by unnecessary taxes. For many high-net-worth families and entrepreneurs, the priority isn’t always higher returns — it’s keeping more of what you earn. One of the most powerful tools to achieve that today is direct indexing.
What Is Direct Indexing?
At its core, direct indexing allows you to own the individual stocks of an index (such as the S&P 500) in a separately managed account, rather than owning them through a mutual fund or ETF.
The difference? Control. By holding the stocks directly, you open the door to strategies like:
- Tax-loss harvesting – Systematically selling individual holdings at a loss while reinvesting in similar companies to maintain market exposure
- Customization – Avoiding certain companies or sectors, for example, if you’re already heavily concentrated in technology or want to align with specific values
- Concentration management – Diversifying away from large single-stock exposures built over years of employment or inheritance
The end result is market-like performance but with added tax efficiency and flexibility.
Why Taxes Matter More Than You Think
For business owners, taxes are often the single largest expense — bigger than payroll, rent, or even debt. However, taxes are one factor you can influence with the right strategies.
Consider these scenarios:
- A looming liquidity event – If you plan to sell your company in three to five years, you’ll likely face a massive capital gains tax bill. By using direct indexing now, you can build a “war chest” of harvested losses to offset those future gains.
- Concentrated stock positions – Whether it’s company stock or a legacy holding, direct indexing allows you to gradually reduce concentration risk while staying tax-neutral.
- Annual gains from rebalancing – Even simple portfolio maintenance can trigger taxes. Tax-loss harvesting helps reduce that cost, allowing wealth to compound more efficiently.
Why Direct Indexing Gives Business Owners a Real Edge
Think about it this way: owning an index fund, like the S&P 500, means you ride the market’s ups and downs as a package. Direct indexing, however, lets you turn volatility into an asset. While the market as a whole may be up, dozens of individual stocks are down at any given time. By capturing those paper losses and redeploying capital into similar stocks, you lock in real tax savings without stepping out of the market.
This approach is especially powerful for:
- Entrepreneurs nearing a business exit
- Families with large appreciated stock positions
- Investors who want their portfolio to reflect their values or sector views
How Technology Makes Direct Indexing Possible
Direct indexing was once reserved for ultra-wealthy families due to its complexity. Today, technological advances make it accessible to a far broader set of investors. Sophisticated software can monitor thousands of accounts, track cost basis, identify harvesting opportunities year-round, and ensure portfolios stay aligned with the chosen index.
Explore Direct Indexing with The Wealth Stewards
For business owners, wealth isn’t just about what you make; it’s about what you keep. Direct indexing offers a disciplined, tax-aware strategy to protect and grow your wealth, especially if you’re preparing for a future exit or managing significant stock positions.
The markets will always be volatile. Direct indexing turns that volatility into opportunity.Want to help minimize your future tax bill? Our team will be happy to help you explore direct indexing. Contact us today.
This material is for informational purposes only and does not constitute investment advice. Direct indexing involves risks, including tracking error, higher costs, and potential loss of principal. Tax-management strategies are not guaranteed and depend on individual circumstances. Not all investors are suitable candidates for direct indexing.