Rich Habits Podcast – Episode Summary

Episode: The Easiest Way To Lower Your Tax Bill – Direct Indexing with Public
Date: October 13, 2025
Hosts: Austin Hankwitz & Robert Croak
Guest: Steven Sykes, COO of Public

Overview

This episode explores the concept of direct indexing and how Public is democratizing this powerful wealth-building strategy. Traditionally reserved for high-net-worth individuals with $250,000+ to invest, direct indexing is now available to anyone with just $1,000 through Public. The conversation details how direct indexing can drastically improve after-tax returns, digs into the mechanics and advantages over ETFs, and answers listener questions about wealth building and financial decisions.

Key Discussion Points & Insights

1. What Is Direct Indexing? (02:24, 04:54)

• Traditional ETFs:
  Most investors use ETFs (like VOO, QQQ) to gain exposure to indexes without owning the individual stocks inside those funds.
• Direct Indexing:
  Direct indexing involves owning the underlying stocks in an index individually, rather than owning shares in an ETF.
• Why It Matters:
  This ownership allows for more personalized tax management, notably tax loss harvesting, and portfolio customization.

“With direct indexing, you're actually going out and buying all of the individual stocks that yourself. … The tax advantages by doing this can be massive.”
– Austin Hankwitz (02:24)

2. The Power & Role of Diversification (05:21)

• Diversification is described as “the only free lunch in finance.”
• Uncorrelated returns between individual stocks help manage risk and reduce portfolio drawdowns.

“The only quote, unquote free lunch in finance is diversification. And what people mean … is owning a wide variety of uncorrelated assets.”
– Steven Sykes (05:21)

3. Tax Loss Harvesting Explained (09:47)

• When you own individual stocks, you can sell those that have lost value, realize the capital losses, and use them to offset capital gains—reducing your tax bill.
• Public’s direct indexing product automates this process, aiming to closely track the benchmark index’s returns while providing this tax benefit.

“…you're very nearly getting the returns of the S&P 500 … but you're also getting this tax benefit over time and on an after tax basis that's worth way more than the fees you're paying for an ETF.”
– Steven Sykes (09:47)

4. Democratizing Direct Indexing (12:16, 13:53)

• Historically, direct indexing required $250k+ and was only accessible through private wealth managers.
• Public now offers it to anyone with a $1,000 minimum, enabled by their fractional trading engine. Small accounts will not own all 500 stocks but can achieve broad diversification.

“…We took our amazing real time fractional trading engine … and we turned it on this indexing challenge … we can get people started with a well diversified direct index portfolio with $1,000 minimum. … That's the lowest it's ever been done.”
– Steven Sykes (13:53)

5. User Experience & Customization (16:37)

• The aim is to make direct indexing on Public feel as simple as buying an ETF.
• Investors can personalize their portfolios (e.g., exclude certain stocks, industries, or avoid duplicating holdings) with a click.
• Users receive the same diversification benefits and can even exercise shareholder rights.

“Literally it's as easy as … clicking a button. … All those guys that you don't want to invest in go away. And we reallocate those funds.”
– Steven Sykes (17:43)

6. Cost and Fee Structure (18:55, 20:24)

• Public charges 0.19% (19 basis points) annually. For comparison, VOO charges about 0.03%.
• However, after-tax returns often outweigh fee differences due to systematic tax loss harvesting.
• Austin shares his personal results: on $20k directly indexed, he harvested $2,265 in losses—over 11% in roughly 15 months.

“I've tax loss harvested $2,265 so just about 11% right of my initial investment.”
– Austin Hankwitz (20:24)

7. Portfolio Rebalancing & Future Directions (22:31, 23:17, 24:37, 26:00)

• Public tracks the relevant index (like S&P 500), updating holdings when the index changes.
• Customizations are available for users who prefer to keep the original index composition.
• The platform is developing “Generated Assets”—AI-powered custom indexes based on user prompts and backtesting, soon to be investable through direct indexing.

“You can imagine on the back of direct indexing, we have an engine to help invest in [your thesis index] and manage that over time.”
– Steven Sykes (23:17)

8. Direct Indexing vs. ETFs – Who Should Use What? (26:04, 26:39)

• For new investors, the standard advice still applies: prioritize 401(k) matches, IRAs, and liquidity before branching into personal brokerage accounts.
• After those needs are covered, direct indexing (now accessible at low minimums) makes sense for both beginners and those with established ETF positions, due to its tax advantages and flexibility.

“Once you're done with [retirement accounts], … manage it with tax exposure through … direct indexing on a recurring basis … it's a phenomenal product for anyone in that sort of early stage of their savings or people that are later.”
– Steven Sykes (26:39)

Notable Quotes & Memorable Moments

• On democratizing a powerful tool:
  “This game is changing right here today with what Public is offering. … Now you're able to do it with $1,000 on public. So I want to make sure we broke that down for the everyday person.”
  – Robert Croak (10:45)

• On the importance of after-tax returns:
  “It's not what you make, it's what you keep.”
  – Robert Croak (21:47)

• On personal results:
  “I've tax loss harvested $2,265 so just about 11% right. Of my initial investment.”
  – Austin Hankwitz (20:24)

• On product philosophy:
  “Public exists to like, you know, serve people who are serious about investing.”
  – Steven Sykes (03:33)

Timestamps of Key Segments

| Segment | Timestamp | |---------------------------------------------------|-----------| | Introduction of Direct Indexing | 02:24 | | Diversification and Modern Portfolio Theory | 05:21 | | Tax Loss Harvesting Explained | 09:47 | | Who Can Access Direct Indexing (Democratization) | 12:16 | | Fractional Trading and $1,000 Minimum | 13:53 | | User Experience & Customization | 16:37 | | Cost, Fees, and Competing With ETFs | 18:55 | | Austin's Personal Experience with Tax Loss Harvesting | 20:24 | | S&P 500 Rebalancing/Customization | 22:31 | | Upcoming Innovation: Generated Assets | 24:37 | | Direct Indexing vs. ETFs – Who Should Use What | 26:04 | | Final Advice for Early Wealth Builders | 26:39 | | Where to Learn More & Contact Info | 28:21 |

Listener Q&A Highlights

1. Should I Pay Off Student Loans Fast or Invest? (34:05)

• Listener Alex F. (25, recent grad) considering whether to put extra money toward student loans or investing.
• Both hosts recommend paying minimums on low-interest loans and prioritizing investing, especially in early career years.
• Avoid large vehicle payments that cut into investment potential.

“We only encourage people to start paying down their student loans aggressively after they have an equivalent amount or more invested in the stock market.”
– Austin Hankwitz (37:20)

2. How Much Cash Should a Business Owner Keep vs. Invest? (44:01)

• Listener Jessica (self-employed) keeps $10k–$90k in a business high-yield savings account for inventory and questions if this is too much.
• Hosts discuss keeping enough to cover inventory cycles and payroll emergencies, but not so much that excess is left uninvested.
• Auditing inventory costs and negotiating better terms can further improve financial outcomes.

“Keep enough for emergencies and big inventory needs, but don't let too much sit idle—get the rest invested.”
– Robert Croak & Austin Hankwitz (48:55)

Actionable Takeaways

• Direct indexing can significantly enhance after-tax returns for both new and experienced investors, especially now that it’s accessible at a $1,000 minimum.
• Tax loss harvesting is a powerful tool for keeping more of your gains—owning individual stocks (not just ETFs) is the gateway.
• Customization and control, including the ability to exclude certain stocks or overweight sectors, is unique to direct indexing and can align investments with your personal values or situation.
• Carefully balance emergency cash needs against the opportunity cost of holding too much idle cash—in both personal and business contexts.
• When starting your wealth-building journey, maximize tax-advantaged accounts first, limit high-interest debt, and seek out strategies (like direct indexing) that help you optimize growth and tax efficiency.

Where to Learn More

• public.com – For direct indexing & platform details
• Steven Sykes: Findable on Twitter, Reddit, and more for follow-up questions
• Linked Resources: The Rich Habits newsletter & community

This episode delivers a deep, practical, and timely exploration of direct indexing—how it works, why it matters, and why it may be the most accessible it's ever been for everyday investors. The hosts’ and guest's real-world experience, candid examples, and actionable advice make it an invaluable listen for anyone serious about optimizing their investing habits.