Self-directed vs. Managed Investing: Which One’s Right for You?

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It’s one of the first things most investors have to ask themselves: who do you want to invest your money? Before you start a spreadsheet to properly weigh all of your options, we’ll offer you a little hint. There are only two:

  1. You

  2. Someone else

Which one you pick — or whether you decide to do a little of both — depends on factors like how much time you have to invest, how much you know about the market, and how much money you want to spend. And while we can’t tell you which option is right for you, we can walk you through the advantages and disadvantages of both — and help you get to the point where you can decide for yourself.

What is managed investing?

Managed investing is when you let a professional direct where you invest your money, with the goal of getting you set up with a diversified portfolio that meets your specific needs and goals. Some managed investments rely solely on human advisors. Others use professionals to design the portfolios and technology to optimize them for you (and keep your costs down).

Whichever variant you choose, managed investments usually begin with a few questions about your goals and your comfort with risk. Your answers help determine the investments the manager thinks are best for you, but that’s all you have to do. After that, your job is simply to fund your account. (It's often recommend to set up an auto-deposit in order to make sure you stay on the financial track you’ve planned, and so that you don’t have to worry about the timing of your investment.)

One caveat: this is a service, and with service comes a fee, which can cost you a bit of your returns, especially in the long term.

What is self-directed investing?

With DIY investing, you are responsible for everything and in total control — which can be a good or bad thing, depending on you. You choose how much you want to invest and where to invest it, whether that’s individual stocks, ETFs, mutual funds, commodities, or wherever else you see potential. There are no management fees — and even if there were, you're the manager! So those fees would just be paid to you.

What are the benefits of managed accounts?

It’s not just that you get to spend more time on the couch, watching YouTube recaps of chess tournaments. Here are a few reasons you might want to hand the reins to a professional:

  1. Better returns, historically speaking. Managed accounts typically earn better returns than self-directed investors.

  2. Ease of use. It’s hard to do self-directed investing right — to figure out what should be in your portfolio and whether or not it’s right for your goals. Plus, it takes a lot of discipline to stick to your plan and stay on top of your investments. With managed investing, all of that is done for you.

  3. Broader exposure. Global markets can be a lot to figure out on your own. Let someone else do it for you.

  4. Rebalancing. Managed portfolios are regularly adjusted to keep your mix of investments on the right track when there are big market movements — a practice called rebalancing.

  5. Access to experts. These living, breathing humans are paid to advise you and can look at the entirety of your financial well-being and help you make the best investment choices for you. This can be especially helpful when times are tough.

  6. Access to exclusive opportunities. Whether it’s private investments that retail investors aren’t likely to know about or funds that tend to be available only to fancy rich folks, managers can get your money into places you often can’t. Even high-minimum-contribution investments are accessible when your money is being pooled with others.

  7. Emotional detachment. Emotional investors are not steady investors. Also, they tend not to be good investors. But with someone investing for you, that’s not a problem. This is the best chance you’ve got at keeping yourself from chasing or trying to outwit the stock market — something that even people who devote all of their time to investing can’t often pull off.

What are the benefits of self-directed investing?

Got some time and a can-do attitude? Here’s why you might like self-directed investing.

  1. Low cost. Remember that thing we said about fees eating into your returns? If there are no fees, then there are no such worries. Any money you would have spent on management fees can go directly into your portfolio.

  2. Lots of control. You’re not investing with a strategy that someone has decided is the best for most people. You’re investing with a strategy that you decide is best for you. Your portfolio = your priorities.

  3. Wider range of potential outcomes. You’re not limited to the specific tiers of risk that managed investing tends to offer. If you want those, of course, you can invest that way. But if you want something else you can do that too.

  4. Fun. Sitting in the back seat is never as much fun as driving.

One final piece of advice

No matter what you choose, most professionals recommend investing in a diversified portfolio — with several different kinds of investments in several different markets. And remember: value tends to be built over time. In the end, whether you choose to take this on yourself or have a professional do things for you, what ends up doing the real work is your portfolio.

Last Updated January 4, 2024

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