Direct indexing calculator: S&P 500 ETF expense ratio vs direct indexing fee, and whether the fee pays for itself.
Pick the ETF you hold and the direct index you are being offered. Add the gains you realize in a typical year and your tax rates. The calculator puts the extra fee and the value of the harvested losses side by side, in dollars, and tells you the harvest rate you need to break even.
Generic expense ratio calculators compare two funds. They cannot tell you whether a 0.40% account earns its fee, because the answer depends on your realized gains, not on the fee.
Direct indexing calculator
of this year's losses has nowhere to go and carries forward. It is not wasted, but it saves nothing until you realize gains or spend it at $3,000 a year.
Estimate only, not tax or investment advice. Harvested losses lower the cost basis of the replacement shares, so most of the value is deferral unless the shares are held until death or donated.
The short answer
A direct index costs 0.06% to 0.37% a year more than a 0.03% S&P 500 ETF, depending on the provider. It pays for itself only if the losses it harvests save more tax than that gap. With realized gains to offset, the bar is low: a 0.40% account needs harvested losses of about 1.55% of its value a year at a 23.8% rate. Without gains, the benefit is capped at $3,000 of losses a year, so above roughly $259,000 in the 32% bracket a 0.40% account cannot earn its fee back at all.
S&P 500 ETF expense ratio vs direct indexing fee
What each direct index costs over the cheapest S&P 500 ETF
Measured against Vanguard's S&P 500 ETF at 0.03%. The break-even columns are the harvested losses needed each year, as a share of the account, for the tax saved to equal the extra fee. They do not depend on account size.
| Provider and product | Annual fee | Minimum | Gap vs 0.03% ETF | Extra per $100,000 | Break-even at 23.8% | Break-even at 15% |
|---|---|---|---|---|---|---|
| Frec Classic, S&P 500 | 0.09% | $20,000 | 0.06% | $60 | 0.25% | 0.40% |
| Wealthfront S&P 500 Direct | 0.09% | $5,000 | 0.06% | $60 | 0.25% | 0.40% |
| Wealthfront US Direct Indexing | 0.25% | $100,000 | 0.22% | $220 | 0.92% | 1.47% |
| Schwab Personalized Indexing | 0.40% | $100,000 | 0.37% | $370 | 1.55% | 2.47% |
| Fidelity Managed FidFolios, index strategies | 0.40% gross | $5,000 | 0.37% | $370 | 1.55% | 2.47% |
Two things stand out. First, the cheap end of the market has almost closed the gap. Frec's pricing page sets its S&P 500 strategy against SPY and notes that SPY's expense ratio is also 0.09%, so if SPY is what you hold today, moving to a 0.09% direct index costs you nothing extra at all. Against VOO it is $60 a year per $100,000.
Second, the 0.40% tier needs six times as much harvesting to break even. That is achievable in the first years of an account, when many positions sit below their purchase price, and much harder later, once the market has lifted most of the basis. The full fee schedules, including the adviser-channel managers who do not publish prices, are on our direct indexing fees comparison. Fidelity's 0.40% is a gross figure that its Form ADV says is later reduced by a credit amount, so its true gap is slightly smaller and cannot be known in advance.
Minimum balance for direct indexing to be worth it
With no realized gains, bigger accounts do worse, not better
Most people look for a minimum balance. For an investor with no realized gains, the real constraint is a maximum. IRS Publication 550 limits the capital loss you can deduct against ordinary income to the lesser of $3,000 ($1,500 married filing separately) or your net loss. The fee has no such cap: it grows with every dollar in the account. So there is an account size above which the fee exceeds the most the losses could ever save in a year.
The formula is short: $3,000 times your ordinary rate, divided by the fee gap. These are the results, rounded, before any state tax.
| Fee gap vs a 0.03% ETF | 24% bracket | 32% bracket | 37% bracket |
|---|---|---|---|
| 0.06% (Frec or Wealthfront S&P 500 at 0.09%) | $1,200,000 | $1,600,000 | $1,850,000 |
| 0.22% (Wealthfront US Direct Indexing at 0.25%) | $327,000 | $436,000 | $505,000 |
| 0.37% (Schwab or Fidelity at 0.40%) | $195,000 | $259,000 | $300,000 |
Read the bottom row carefully. A $300,000 account at Schwab or Fidelity, owned by someone who never sells anything at a gain, pays $1,110 a year more than VOO and can save at most $960 in the 32% bracket. It loses money every year regardless of how the market moves. The same account at 0.09% pays $180 extra and clears easily.
Realized gains change everything, because losses offset gains dollar for dollar with no cap. That is why every serious provider pitches direct indexing to people with gains coming: stock compensation, a business sale, a concentrated position being sold down, or an active trading account alongside. Enter your typical annual gains in the calculator and the ceiling stops mattering. If your gains are large and front-loaded, our tax loss harvesting calculator runs the full Schedule D netting for a single year.
How many bps of tax alpha
What harvest rate to type in
Cache
3% to 8% a year
Cache's long-short product page quotes this as the estimated annual losses harvested by traditional direct indexing, as the baseline its leveraged strategies are compared against.
Frec
25% cumulative
Frec lists a historical harvest rate of 25% for its S&P 500 strategy, which it expresses as $25,000 of losses per $100,000 invested. It is a cumulative figure, not an annual one.
Wealthfront
0.18% to 0.44%
Its whitepaper backtest from 2015 to 2025 puts the after-tax benefit, not the losses, at this share of account value a year, across marginal rates of 18% to 44%.
Start with 3% for a new account funded with cash and 1% for an account that has been running for several years. The harvest rate falls over time for a mechanical reason: every year the index rises, more positions sit above their cost basis, and there is less left to sell at a loss. An account opened just before a drawdown harvests far more than one opened at the start of a long rally.
Wealthfront's range is the most useful cross-check because it is already a net benefit. Put 0.18% to 0.44% next to the fee gap column above and the pattern is plain: a 0.06% gap sits comfortably inside it, a 0.37% gap only fits at the top of the range. People who already hold an old ETF position are in a different position again, because moving it into a direct index sells it. What that costs, and what the move out of a direct index later costs, is on our page about ACATS transfer fees.
Build the index you would actually hold and backtest it
The calculator assumes a plain S&P 500. Most people who move to a direct index change it: they drop an employer's stock, cut a sector, or tilt toward dividends. Every change adds tracking error, and a direct index that drifts 1% from its benchmark in a bad year can wipe out several years of fee savings.
Indexes lets you build that exact weighted index, backtest it against the S&P 500, and see the gap before you commit money to a provider. If the customized version tracks well, the fee comparison above is the whole decision. If it does not, you have saved yourself the fee and the tax cost of unwinding it.
The backtest did not run just now. Tap Backtest it to try again.
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How to use the calculator
Four inputs decide the answer
1
Your real alternative
Use the ETF you would otherwise hold. VOO and IVV sit at 0.03%, SPY at 0.09%. The gap is what you pay for harvesting.
2
The fee you were quoted
Use the provider's own number. Add any adviser fee on top if the direct index is sold through one.
3
Gains you actually realize
RSU sales, fund distributions, a rental or business sale. This single number moves the result more than the fee does.
4
A sober harvest rate
3% for a new account, lower for an old one. Run it at 1% too: if the answer only works at 8%, it probably does not work.
One more adjustment the calculator leaves to you: deferral. A harvested loss lowers the cost basis of whatever you buy in its place, so the tax comes back when you eventually sell. The saving is permanent only if you hold the shares until death, when the basis steps up, or give them to charity. If you expect to sell the whole account in ten years, treat the calculator's figure as the upper bound and the fee as the price of a tax deferral. Which platforms do the harvesting automatically, and how often they scan, is compared on our tax loss harvesting software page.
Is direct indexing worth it
Questions people ask before switching from an ETF
Is direct indexing worth it for a 50k portfolio?
Usually only at 0.09%. On $50,000 the gap between a 0.09% direct index and a 0.03% S&P 500 ETF is $30 a year, and harvesting about 3% of the account ($1,500) is worth roughly $360 against ordinary income in the 24% bracket. At 0.40% the gap is $185, which still clears, but the benefit is capped at $3,000 of losses a year unless you have realized gains to offset.
What is the minimum balance for direct indexing to be worth it?
There is no single minimum, because the fee scales with the account and the benefit scales with your realized gains. The calculator shows it plainly: with no gains to offset, a 0.40% account stops paying for itself above about $259,000 in the 32% bracket, while a 0.09% account holds up to about $1.6 million. With large gains every year, even small accounts clear the fee easily.
Why do some investors say direct indexing isn't worth it compared with just holding an S&P 500 ETF?
Because in their situation it is not. An S&P 500 ETF costs 0.03% to 0.09%, and a direct index charges 0.09% to 0.40%. If you never realize gains, harvested losses only reduce ordinary income by $3,000 a year, and those savings are mostly deferral because they lower your cost basis. For an investor with no gains and a large account, the ETF usually wins.
How many bps of tax alpha can you realistically get from direct indexing?
Wealthfront's own whitepaper backtest puts it at 0.18% to 0.44% of account value a year, depending on the marginal rate, over 2015 to 2025. Vanguard cites 1% to 2% or more only for clients who regularly realize large capital gains. Those figures are before fees, so subtract the gap to your ETF to see what is left.
Does direct indexing cost more than an S&P 500 ETF?
Almost always, but by very different amounts. Vanguard's S&P 500 ETF charges 0.03%. Frec and Wealthfront charge 0.09% for an S&P 500 direct index, which Frec points out equals SPY's 0.09% expense ratio. Schwab and Fidelity charge 0.40%. The gap runs from zero against SPY to 0.37% a year against the cheapest ETF.
How much in losses does a direct index need to harvest to cover its fee?
Divide the fee gap by the tax rate the losses save. A 0.06% gap needs harvested losses of about 0.25% of the account a year at a 23.8% long-term rate. A 0.37% gap needs about 1.55%. Cache quotes 3% to 8% a year for traditional direct indexing, so the fee is usually covered early on and gets harder as the account ages.
Sources
Frec fees, minimums and the 25% historical harvest rate for its S&P 500 strategy from frec.com/pricing, which also states SPY's expense ratio as 0.09%. Wealthfront S&P 500 Direct (0.09%, $5,000), Nasdaq-100 Direct (0.12%, $5,000) and US Direct Indexing (0.25% advisory fee, $100,000) from Wealthfront's support center. Schwab Personalized Indexing from schwab.com/personalized-indexing (0.40%, $100,000). Fidelity Managed FidFolios from its Form ADV Part 2A, including the gross advisory fee and credit amount. The 3% to 8% range from usecache.com/product/long-short. The 0.18% to 0.44% range from Wealthfront's tax loss harvesting whitepaper. The $3,000 limit from IRS Publication 550 and Topic 409. VOO's 0.03% expense ratio from Vanguard. Break-even and ceiling figures are our arithmetic from those inputs. Indexes is not affiliated with any provider named here. We are index construction and backtesting software: we do not manage money, place trades or give tax advice.
Know the index before you pay for it
Build the weighted index you would hold, with your exclusions and tilts, backtest it against the S&P 500, and track it. Then decide whether a provider's fee is worth paying to run it.
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