While Double is known for its powerful direct indexing capabilities, it also seamlessly supports Exchange-Traded Fund (ETF) investing. This guide will explore how Double can enhance your ETF investment strategy, even if you prefer the simplicity of ETFs over managing individual stocks.
Why Use Double for ETF Investing?
Even without the granular control of direct indexing, Double offers significant advantages for ETF investors:
Automated Tax-Loss Harvesting: Minimize your tax bill by automatically harvesting losses in your ETF portfolio.
Intelligent Rebalancing: Keep your portfolio aligned with your target asset allocation through automated rebalancing.
Smooth Dollar-Cost Averaging: Invest gradually over time to reduce the impact of market volatility and take the emotion out of investing.
All of these features are available for just $1 a month.
ETF Expense Ratios
It's important to remember that ETFs come with their own expense ratios. If you're comfortable with these fees and prefer the simplicity of ETFs, Double can be a powerful tool to optimize your investment strategy.
Building a Bogglehead Portfolio with Tax-Loss Harvesting Pairs
Let's walk through setting up a classic three-fund Bogglehead portfolio using Double's "tax-loss harvesting with pairs" optimization. This strategy, known as the "Majesty of Simplicity," is favored for its straightforward approach.
Navigate to the Strategy Tab: Log into your Double account and go to the "Strategy" tab (formerly "Explore").
Find the Majesty of Simplicity Portfolio: Scroll down to the sample Bogglehead portfolios and select "Majesty of Simplicity."
Click "Invest": This will take you to the investment screen.
Choose "Tax-Loss Harvesting with Pairs": Select this optimization type from the available options.
Select Replacement Pairs: For each ETF in the portfolio (VTI, BND, VXUS), choose a complementary ETF that is highly correlated but not substantially identical. This is crucial for tax-loss harvesting.
For VTI, SPLG is the recommended pair.
For BND, AGG is the most highly correlated ETF. You can view correlation data by clicking on the ETF ticker.
For VXUS, VEU is the most highly correlated ETF.
Name Your Strategy: Give your strategy a name and a ticker symbol (e.g., "Majesty of Simplicity," MOS).
Submit: Click "Submit" to create your strategy.
Understanding Tax-Loss Harvesting with Pairs
This optimization means each ETF has a designated "pair" – a similar but not identical ETF. If one ETF declines in value, Double will sell it at a loss and immediately buy the paired ETF. This maintains your portfolio's exposure while realizing a loss for tax purposes. Importantly, this avoids the IRS's "wash sale" rule, which disallows claiming a loss if you buy a substantially identical security within 30 days before or after the sale. The harvested loss can offset capital gains or up to $3,000 of ordinary income.
Migrating Your Existing Portfolio
Double allows you to seamlessly transition your current portfolio to your new ETF strategy:
Go to "Change Weights": Find this option within your strategy.
Set Target Weights: Define the desired allocation between your existing strategy and your new ETF strategy (e.g., 50/50).
Choose Migration Schedule: Select "Over Time" to gradually migrate your portfolio. You can choose weekly or monthly steps over a specified period (e.g., weekly over four months).
Submit: Confirm your changes. Double will automatically adjust your portfolio according to your chosen schedule.
Conclusion
Double provides a powerful and cost-effective way to manage your ETF investments. With automated tax-loss harvesting, intelligent rebalancing, and smooth dollar-cost averaging, you can optimize your portfolio and simplify your investment journey.