Is Wealthsimple’s new direct indexing worth it?

Back in December 2025, I looked at one of those launches: physical gold trading. The conclusion was “it depends.” If your goal is portfolio diversification, gold funds are still the more efficient option. If physically owning gold matters to you, then paying a fee to have it delivered could make sense.

Wealthsimple has not stopped there. One of its more recent additions is direct indexing, a phenomenon that has gained traction in the United States, particularly in advisor-managed accounts. It allows investors to replicate an index by holding the individual securities directly, rather than through an exchange-traded fund (ETF). 

Until recently in Canada, this has largely been out of reach for everyday investors, which makes its introduction on a retail-focused platform notable. At the same time, the list of available features continues to grow. Beyond gold and direct indexing, investors are being offered access to private equity, private credit, cryptocurrency, and portfolio lines of credit. 

But the pace of innovation raises a question: just because you can access these strategies, does that mean you should? Here is what you need to know about Wealthsimple’s direct indexing, how it works, and whether it makes sense for your portfolio.

What is direct indexing?

An index is not an investment you can buy; it’s a set of rules that determines which securities are included in a group and how much weight each one receives. You can track how an index has performed over time and do back tests but, on its own, it is just a mathematical construct.

To actually invest in an index, you need a vehicle that implements those rules. Traditionally, that has meant buying an index ETF or mutual fund. You give your money to a fund provider, and they go out and purchase the underlying securities. In return, you receive units of the fund, which represent a proportional stake in all the holdings.

Direct indexing takes a different approach. Instead of pooling your money with other investors inside a fund, your portfolio holds the individual stocks directly. With the help of technology, a provider builds and maintains a basket of securities in your account that mirrors a chosen index.

In practice, the experience is still hands-off. You are not manually buying hundreds of stocks yourself. You give your capital to the provider—in this case, Wealthsimple—and their system handles the trading, rebalancing, and ongoing management.

Wealthsimple’s offering is based on the Morningstar US Target Market Exposure Index and the Morningstar Canada Domestic Index. While the names differ, the end result is similar. You are getting broad exposure to the U.S. and Canadian equity markets, but through direct ownership of the individual securities, rather than through a fund.

The benefits of direct indexing

Before getting into the advantages, it is important to be clear about who this is for. Direct indexing is designed for investors using a non-registered, taxable brokerage account. Wealthsimple’s offering is not available in registered accounts such as a tax-free savings account (TFSA), registered retirement savings plan (RRSP), or first home savings account (FHSA). That limitation exists because the primary benefit of direct indexing is tax-loss harvesting.

In Canada, when you sell a security for less than what you paid for it, you realize a capital loss. That loss can be used to offset capital gains, reducing the amount of tax you owe. If you do not have gains in the current year, you can carry those losses back up to three years or forward indefinitely to offset gains in the future. Over time, this can become a meaningful way to improve after-tax returns.

There is an important restriction called the superficial loss rule. If you sell a security at a loss and then repurchase the same or a “substantially identical” security within 30 days before or after the sale, the Canada Revenue Agency (CRA) denies the loss for tax purposes. In other words, you cannot sell a stock, claim the loss, and immediately buy it back.

Tax-loss harvesting works around this by maintaining similar market exposure without violating that rule. For example, if you sold shares of BCE Inc. at a loss, you could replace them with Telus Corp. The same idea applies in the U.S., such as selling Visa and buying Mastercard. Both companies operate in the same industry, have similar business models, and are exposed to similar economic factors, but they are not considered identical securities. 

Direct indexing takes this concept and applies it at scale. Within a broad index, there are always winners and losers at any given time. Even when the overall portfolio is up, that performance is often driven by a relatively small number of stocks, while others may still be trading below their purchase price. 

Direct indexing platforms can systematically identify those positions, sell them to realize losses, and reinvest the proceeds into similar securities that maintain the portfolio’s overall exposure. This process can be repeated throughout the year, creating a steady stream of realized losses that can be used to offset gains elsewhere in your portfolio. Wealthsimple refers to the benefit as “tax alpha” and suggests it can add up to about 0.5% in additional after-tax return over time. 

The fine print you need to watch out for

Tax-loss harvesting is something experienced advisors have been doing for years, particularly in discretionary accounts where they have flexibility to trade individual securities. In that sense, Wealthsimple is bringing an institutional practice to retail investors. That said, the offering is not as simple as it first appears. There are a few things investors should understand before committing to direct indexing.