In this article:
Overview
A Direct Indexing portfolio gives you more control over your investments and can help you save on taxes. Instead of using an ETF to track a market index, your money is invested into a subset of individual stocks that make up the index. You can open a Direct Indexing portfolio that follows either the Canadian or the US stock index.
This strategy allows for tax-loss harvesting, which automatically sells stocks that have lost value to offset any capital gains. We call the extra after-tax return you get from this strategy "tax alpha." Our technology automates your portfolio, so you don't have to worry about the day-to-day work. Investing the funds added to a Direct Indexing account takes 1-3 business days.
Key features of a Direct Indexing portfolio
- 100% equity market exposure: Your portfolio gives you full equity market exposure by directly owning individual stocks.
- Tax-loss harvesting: A Direct Indexing portfolio automatically captures capital losses to offset any capital gains.
- Stock exclusion: You can exclude individual stocks from your portfolio based on personal preferences or employment restrictions.
Eligible account types
You can open a Direct Indexing in a non-registered account. The portfolio isn't supported in other account types at this time.
Service fees
We charge a service fee of 0.15%. This fee is comparable to the cost of many market-tracking ETFs, with the benefits of tax-loss harvesting and the ability to customize your portfolio.
How to open a Direct Indexing portfolio
Follow these steps to open a Direct Indexing portfolio:
- Log in to the Wealthsimple app
- Tap the Move tab at the bottom of your screen
- Choose Add account
- Select Non-registered as the account type
- Tap Portfolios
- Select You to open an individual non-registered account
- Tap Direct Indexing from the list of portfolios
- Tap Start Direct Indexing
- Choose which index you'd like to follow: A Canadian Index or a US Index
Tax filing with Direct Indexing
A Direct Indexing account can generate a high volume of transactions per year by design because it holds many individual stocks and performs regular tax-loss harvesting. The most efficient way to report these transactions to the Canada Revenue Agency (CRA) is by using the Auto-fill My Return (AFR) feature within your tax software.
How Auto-fill My Return (AFR) works
AFR is a secure CRA service that automatically imports tax information—including your T5008 slips from Wealthsimple—directly into your tax return. This tool is designed specifically to handle high transaction volumes, removing the need for you to manually enter every trade.
To use this feature, you typically log in to your CRA My Account through your tax preparation software (such as Wealthsimple Tax) and select the option to "auto-fill" or "import" your data.
What to expect for the 2025 tax season
While the CRA experienced some data delivery delays in early 2025 due to government policy changes on capital gains, these issues are now resolved, and we expect standard slip issuance timelines and AFR functionality for this tax season. You can expect the following:
- Timeline: Tax slips are typically available in late February or early March.
- Notifications: We'll notify you by email as soon as your T5008 slips are ready to download.
Frequently asked questions
Who is a Direct Indexing portfolio suitable for?
A Direct Indexing portfolio is ideal for clients who want to maximize their after-tax returns. It's also suitable for clients who want index-like exposure but want to avoid holding specific stocks within an index.
What is the minimum initial deposit?
An initial deposit of $1,000 is required for a Direct Indexing account.
Can I customize my portfolio or exclude specific stocks?
Yes, you can choose to exclude certain companies from your portfolio based on your personal preferences or compliance requirements.
If you exclude a company that you already hold in your account, your position will be sold the next time your account is rebalanced, which is typically within two weeks.
Follow these steps to customize your portfolio:
- Log in to the Wealthsimple app
- Tap your Direct Indexing portfolio
- Tap Stock exclusions
- Choose which stocks you'd like to exclude from your portfolio
- Save your changes to finish
Which index does the account track?
Canadian Index accounts track the Morningstar Canada Domestic* index, and US Index accounts track the Morningstar US Target Market Exposure* index.
Will I hold all of the stocks in the index?
No. Direct Indexing accounts are designed to track the index without holding every individual stock. The smallest stocks in an index don't typically move the needle on overall returns, so your account may not hold them. Not holding every stock also makes tax-loss harvesting more effective—when a stock drops, we can sell it and replace it with something similar that you don't already own, so you stay invested while capturing the tax loss. Finally, if you've excluded certain stocks, your account won't hold them.
How does tax-loss harvesting work?
Tax-loss harvesting means selling a stock when it loses value, capturing that loss, and replacing it with a similar stock to keep you invested. Those losses can be used to offset gains elsewhere in your portfolio, which can lower your tax bill. Our technology will automatically harvest tax losses and rebalance your account when funds are deposited or withdrawn, or when the account loses 5% or more of its total value. Outside of those situations, tax-loss harvesting and rebalancing will occur on a monthly basis.
The replacement stocks we buy might perform differently from the ones we sell, and tax-loss harvesting can cause your portfolio's performance to differ from the index. Whether tax-loss harvesting reduces your taxes depends on your overall tax situation. Please consult a tax professional for guidance on your specific situation.
Will I pay FX fees in this account?
Yes, in US Index accounts only. We charge a 0.05% fee to convert your CAD to USD to buy US stocks, meaning you'll pay a $5 fee for every $10,000 you deposit. You'll pay the same fee when you withdraw, as we sell your US stocks and convert the USD back to CAD. A 0.4% conversion fee applies when you earn dividends in USD.
What is tax alpha?
Tax alpha refers to the increased after-tax net returns you achieve by using tax-efficient strategies like tax-loss harvesting to manage your portfolio. It's the additional return you get beyond what your investments would normally earn, simply by being strategic about taxes.
In simpler terms, tax alpha is the boost to your investment performance that comes from smart tax management, rather than from the market performance of your investments themselves.
What is tax reinvestment?
Tax reinvestment means taking the tax savings you get from strategies like tax-loss harvesting and putting that money back into your investments. When you offset capital gains with capital losses, you save money on taxes, and reinvesting those savings can further enhance your portfolio's growth over time.
In simpler terms, tax reinvestment is putting the money you saved on taxes back into your investments to help grow your portfolio even more.
Why are the dividends in my US Index account paid out in CAD instead of USD?
All Direct Indexing accounts are CAD-denominated accounts, whether they track the US or Canadian Index. US index accounts hold USD securities, which pay dividends in USD. Because the account is CAD-denominated, the USD is converted to CAD, and then converted back to USD for reinvestment into USD securities.
If I want to withdraw funds, do I get to choose which items to liquidate before I can withdraw, or is it done automatically and proportionally from all holdings?
When we receive a full withdrawal request, all holdings in the account are liquidated. For partial withdrawal requests, our technology rebalances the account to make the requested cash amount available, using the same tax-aware optimization it uses for a typical, regular rebalancing.
Why does my Direct Indexing account have so many transactions?
Tax-loss harvesting requires selling. When our technology spots an opportunity to capture a tax loss, that security is sold and replaced with another, similar security. Since your portfolio holds several hundred individual stocks—and we're rebalancing regularly to maximize your tax benefit—that can generate a high volume of transactions. It's a lot of activity, but it's also how the portfolio delivers a tax benefit.
Do I need to report these trades manually?
No. We strongly recommend using the CRA's Auto-fill My Return feature to avoid manual reporting.
What if my data isn't showing up in AFR yet?
If you don't see your data, it may be because the CRA is still processing the slips we provided. Check your Wealthsimple account to ensure your slips are marked as "Ready" before attempting to import them.
* Wealthsimple Direct Indexing is powered by Morningstar Indexes.
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