Thanks for sharing this.And, there's apparently a relatively new option that's discussed in the latest Bogleheads on Investing Podcast #70 starting around 38:18. A transcript should be posted soon to https://boglecenter.net/blog/Let us assume direct indexing is tracking S&P 500. After N years of direct indexing and TLH, you are left with M stocks from S&P 500 or whatever. I change my mind now and want to go back to S&P 500.
How can you convert those M stocks into the S&P 500 ETF without paying capital gains tax?
It suggests that you could take your basket of stocks and use a service to combine it with other peoples baskets, and use all the assets to create a new ETF through a §351 conversion, which maintains the original cost basis of your contributions, but is easier to manage.
The example given was a group of investors could each contribute at least $10 million in individual stocks from SMAs, and AlphaArchitect would create a new ETF that would try to follow an index like one that is followed by VTI.
It was mentioned that they've done 11 of these conversions over the past 4-5 years, and that the cost of the new ETF would be about 9bps, though it could get down to about 4bps.
Looks like Alpha Architect has a blog post about the conversion technique here: https://alphaarchitect.com/2023/08/the- ... ction-351/ and they have a presentation about work they've done here: https://alphaarchitect.com/wp-content/u ... iew_vF.pdf
Based on the contents of that presentation, and the list of their funds, the fees seem to be significantly higher than 9bps for the resulting ETFs, so perhaps I misunderstood.
This sounds like a plausible off ramp for direct indexing, though I'd want to know more about what happens to these ETFs long term.
Statistics: Posted by babystep — Fri May 31, 2024 12:36 am — Replies 71 — Views 9559