Wealthfront’s standard robo-advisor portfolios buy ETFs to track an index. Its direct indexing option skips the ETF and buys the individual stocks inside that index directly — mainly so it can harvest tax losses on individual names instead of just swapping one fund for another.
Here’s how direct indexing works specifically on Wealthfront, what it costs, how it differs from Wealthfront’s Classic portfolios and who it actually makes sense for.
What is Wealthfront direct indexing?
Instead of holding a single S&P 500 or Nasdaq-100 ETF, Wealthfront’s direct indexing buys the individual stocks that make up that index inside your account. Owning the stocks directly means Wealthfront’s software can sell individual losing positions to harvest a tax loss — something it can’t do with a single ETF share — while keeping your overall index exposure intact by buying similar replacement stocks.(1) This is often called stock-level, or “direct,” tax-loss harvesting.
Wealthfront Classic vs. direct indexing
Wealthfront calls its standard, ETF-based portfolios “Classic.” Both Classic and direct indexing sit inside the same Automated Investing Account and charge the same 0.25% annual advisory fee — the difference is only in how the underlying index exposure is held.(2)
Classic
Direct indexing
How you’re invested
ETFs tracking an index
Individual stocks that make up the index
Tax-loss harvesting
Fund-level (swap one ETF for a similar one)
Stock-level (harvest losses on individual names)
Advisory fee
0.25%
0.25% (no extra charge inside the Automated Investing Account)(2)
Minimum
No separate minimum
$100,000 to use as a strategy in the Automated Investing Account(1)
Direct indexing options and costs
Wealthfront offers direct indexing three different ways:
US Direct Indexing. A portfolio strategy inside the standard Automated Investing Account, available once the account holds at least $100,000. No fee beyond the account’s usual 0.25% advisory fee.(1)
S&P 500 Direct. A standalone product tracking the S&P 500, with a $5,000 minimum and a 0.09% annual fee.(2)
Nasdaq-100 Direct. A standalone product tracking the Nasdaq-100, with a $5,000 minimum and a 0.12% annual fee.(2)
The standalone products have a much lower minimum than US Direct Indexing, but only track one index each, rather than the diversified, multi-asset mix used in a full Automated Investing Account.
Pros and cons of Wealthfront’s direct indexing
Pros
More tax-loss harvesting opportunities. Individual stock price swings create more harvestable losses than a single ETF price move.
No extra fee for US Direct Indexing. It’s included in the standard 0.25% advisory fee once you meet the $100,000 minimum.
Low-cost standalone options. S&P 500 Direct and Nasdaq-100 Direct have a comparatively low $5,000 minimum.
Cons
High minimum for the full strategy. $100,000 is a meaningful barrier compared to Classic, which has no separate minimum.
Harder to leave. Moving away from a portfolio of hundreds of individual stocks means either managing them yourself elsewhere or selling and triggering capital gains tax — unlike a simple ETF-to-ETF transfer.
More complexity. Tracking cost basis across many individual positions is inherently more complicated than tracking a handful of ETFs.
Hot tip: Direct indexing mainly pays off in taxable accounts
The tax benefit of direct indexing only matters in a standard taxable brokerage account. It has no advantage in an individual retirement account (IRA) or other tax-advantaged account, since there’s no tax bill to offset with harvested losses in the first place.
Is Wealthfront’s direct indexing worth it?
Worth considering if: you have $100,000 or more in a taxable Wealthfront account, expect to hold for the long term and want to maximize tax-loss harvesting.
Probably skip it if: your account is smaller than the minimum, your money is in a retirement account or you value the simplicity and easy portability of a plain ETF portfolio over the added tax efficiency.
If you’re deciding between Wealthfront’s direct indexing and a dedicated direct indexing platform, see our Frec vs. Wealthfront comparison — Frec is a lower-minimum direct indexing specialist, while Wealthfront bundles direct indexing into a broader robo-advisor.
How to add direct indexing to your Wealthfront account
Open or fund a Wealthfront Automated Investing Account. See our full Wealthfront review if you don’t have an account yet.
Reach the $100,000 minimum for US Direct Indexing, or open S&P 500 Direct or Nasdaq-100 Direct separately with a $5,000 minimum.
Select direct indexing as your strategy in your account settings.
Leave tax-loss harvesting switched on so Wealthfront’s software can harvest losses at the individual stock level automatically.
Compare Wealthfront to other robo-advisors
See how it stacks up on fees, features and account minimums.
Wealthfront’s direct indexing can meaningfully boost tax-loss harvesting for larger taxable accounts, at no extra cost beyond the standard advisory fee once you clear the $100,000 minimum. The tradeoff is a portfolio that’s more complex to manage and harder to move elsewhere — worth it for investors settling in for the long haul, less so for smaller accounts or anyone who wants to keep their options open.
Frequently asked questions
US Direct Indexing requires a $100,000 Automated Investing Account balance. The standalone S&P 500 Direct and Nasdaq-100 Direct products have a lower $5,000 minimum each.
US Direct Indexing is included in the standard 0.25% advisory fee. The standalone S&P 500 Direct and Nasdaq-100 Direct products charge their own separate fee of 0.09% and 0.12%, respectively.
Classic portfolios hold ETFs that track an index. Direct indexing holds the individual stocks inside that index, which allows for more granular, stock-level tax-loss harvesting. Both charge the same 0.25% advisory fee inside the Automated Investing Account.
Direct indexing's tax-loss harvesting only helps in a taxable account — it has no benefit inside an IRA or other tax-advantaged account, since those accounts don't generate a tax bill to offset in the first place.
Sources
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Matt Miczulski is an investments editor and market analyst at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.
Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on Yahoo Finance, CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.
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