Not an Elm client and not pitching anything here, but they charge 0.12% on top.I read the Elm article. I still don't know how to DIY the sector approach. And if I layer in management, then it is way more expensive than the 0.1% direct indexing approach for less tax-loss harvesting benefit. I think for the sector approach to be firmly on the table, we need a simple recipe to implement it (or have someone do it for 0.1% or less, ETF costs included).I think the sector approach should be on the table.Except you can't swap substantially identical securities, last I looked into it Wealthfront was swapping out VOO for IWM, for example. For sector ETFs that you end up with a mix of different approximate sector ETFs that don't exactly match the target index and your tracking error suffers. And a 0.1% expense ratio on top of a management fee probably puts your costs around 0.25% - 0.45% with TLH rates are considerably worse than direct indexing.
It's not rocket science. Sector ETFs will land between stock-level direct indexing and total market funds in terms of TLH opportunities. Vanguard has the full range available for 0.10% and Fido has them for 0.08%. Plenty of other options as well. Easy.
Of course minimizing tracking error will be easier with 11 ETFs each with direct analogs vs. hundreds of stocks.
There is the considerable benefit of getting stuck with hundreds of positions, but ultimately it's not obvious that sector ETF TLH would justify the fees. And that article certainly provides no added insights.
vs direct indexing: you can DIY if you want, no mgmt fee, no lock in, vastly simpler portfolio, swap big name sector funds all day long with no wash sales, less tracking error (we don't need a study to tell us VGT and FTEC track closer than Exxon and Chevron)
vs total market: more loss action at only 5-7 bps more ER
The sector approach will land in the middle on losses and tracking error.
I like DIY. The recipe is the same as what many here already do to TLH total market funds, but with 11 funds instead of 1. You can use VTI's regularly reported sector split for the initial weightings. As often as you want to look, you sell losers and swap in a competing sector fund, eg, FTEC for VGT.
You can also do int'l with 4-5 regional funds and track VXUS.
Statistics: Posted by Circle the Wagons — Sat Sep 14, 2024 10:34 am