Back in December 2025, I checked out one in every of these introductions: physical gold trading. The conclusion was: “It depends.” If your portfolio is in search of diversification, gold funds are still the more efficient option. If physical ownership of gold is vital to you, it might make sense to pay a fee for delivery.
Wealthsimple hasn’t stopped there. One of their more moderen additions is direct indexing, a phenomenon that has gained traction within the United States, particularly in advisor-managed accounts. It allows investors to copy an index by holding the person securities directly moderately than through an exchange-traded fund (ETF).
Until recently, this has been largely inaccessible to atypical investors in Canada, which is why its launch on a retail-focused platform is notable. At the identical time, the list of obtainable functions continues to grow. Beyond gold and direct indexing, investors are offered access to non-public equity, private credit, cryptocurrencies and portfolio credit lines.
But the pace of innovation raises an issue: Just because you possibly can access these strategies, does that mean you must? Here’s what that you must find out about Wealthsimple’s direct indexing, how it really works, and whether it is sensible on your portfolio.
What is Direct Indexing?
An index is just not an investment you possibly can buy; This is a algorithm that determine which securities are included in a bunch and the way much weight each receives. You can track the performance of an index over time and backtest it, but by itself it’s only a mathematical construct.
To actually put money into an index, you would like a vehicle that implements these rules. Traditionally, this meant buying an index ETF or mutual fund. You give your money to a fund provider they usually buy the underlying securities. In return, you’ll receive fund shares, which represent a proportionate stake in all investments.
Direct indexing takes a unique approach. Instead of pooling your money with other investors in a fund, your portfolio incorporates individual stocks directly. Using technology, a provider creates and maintains a basket of securities in your account that reflects a particular index.
In practice, the experience remains to be straightforward. You don’t manually buy a whole lot of stocks yourself. You give your capital to the provider – on this case Wealthsimple – and their system handles the trading, rebalancing and ongoing management.
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Wealthsimple’s offering relies on the Morningstar US Target Market Exposure Index and the Morningstar Canada Domestic Index. Even though the names are different, the tip result is analogous. You get comprehensive exposure to the US and Canadian stock markets, but through direct ownership of individual securities moderately than through a fund.
The benefits of direct indexing
Before we get into the advantages, it is important to be clear about who it’s suitable for. Direct indexing is aimed toward investors using an unregistered, taxable brokerage account. Wealthsimple’s offering is just not available for registered accounts resembling a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or First Home Savings Account (FHSA). This limitation exists because the first good thing about direct indexation is tax loss harvesting.
If you sell a security in Canada for lower than the quantity you paid for it, you’ll incur a capital loss. This loss may be used to offset capital gains, reducing the quantity of tax you owe. If you do not make any profits in the present 12 months, you possibly can carry forward those losses for up to a few years or carry them over indefinitely to offset future profits. Over time, this could be a useful strategy to improve after-tax returns.
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There is a very important caveat, the superficial loss rule. If you sell a security at a loss after which repurchase the identical or a “substantially identical” security inside 30 days before or after the sale, the Canada Revenue Agency (CRA) will dispute the loss for tax purposes. In other words, you possibly can’t sell a stock, claim the loss, after which immediately buy it back.
Tax-loss harvesting gets around this problem by maintaining an analogous market presence without violating this rule. For example, if you happen to sold shares of BCE Inc. at a loss, you might sell them through Telus Corp. substitute. The same idea applies within the US, for instance when selling Visa and buying Mastercard. Both corporations operate in the identical industry, have similar business models and are subject to similar economic aspects, but will not be considered equivalent securities.
Direct indexing takes this idea and applies it at scale. Within a broad index, there are at all times winners and losers at any given time. Even when the general portfolio is in positive territory, that performance is usually driven by a comparatively small variety of stocks, while others should be trading below their purchase price.
Direct indexing platforms can systematically discover these positions, sell them to appreciate losses, and reinvest the proceeds in similar securities that maintain the portfolio’s overall exposure. This process may be repeated all year long, creating a gentle stream of realized losses that may be used to offset gains elsewhere in your portfolio. Wealthsimple calls the profit “tax alpha” and estimates it may well add as much as about 0.5% in additional after-tax returns over time.
The wonderful print that you must listen to
Tax-loss harvesting is something experienced advisors have been doing for years, particularly in discretionary accounts where they’ve the pliability to trade individual securities. In this sense, Wealthsimple offers private investors an institutional practice. However, the offer is just not so simple as it first seems. There are just a few things investors should understand before selecting direct indexing.
