Managed accounts and self-directed brokerage accounts are two common options available to those looking to further their long-term financial goals. Both serve a function to gain access to the financial markets, but one involves the help of financial professionals, whereas the other relies on you, the investor, to do some of the work. A third option, known as a robo-advisor, automatically invests assets with little to no human supervision based on an individual’s risk tolerance – among other criteria.
There are many other types of investment opportunities and account types, and it can be overwhelming to a new investor to review the wealth of information available. One option isn’t necessarily better than the other—it depends on your preferences and what type of investor you are.
So for simplicity, here is a quick guide to help you figure out which is right for you.
A managed account allows an investment advisor to make the decisions involving your portfolio. That includes the types of investments and the timing around when to buy or sell. With a managed account, you give your money to an investment advisor after aligning on your goals for the investment. They are typically available to investors of all experience levels.
To get started, you’ll give the managed account advisor some basic information, such as:
Your investing goals
How much risk you’re comfortable with, also known as your risk tolerance
How long you want to stay invested
Any other relevant factors (for example, if you’re keen to include socially responsible investments in your portfolio)
From there, the managed account advisor determines where to invest your money, when to buy and sell the investments in your portfolio, whether or not to reinvest stock dividends, when to rebalance (make periodic adjustments to) your portfolio, and when to tax loss harvest (essentially, turning investment losses into tax breaks).
Managed portfolios are worth it—for certain types of investors.
You want to save time: With a managed account, the investment advisor does all the heavy lifting for you; from researching investments, following markets and any day-to-day decision making.
You want a professional at the wheel: You don’t need to be an investing expert. Instead, you can use an individual or service and feel comfortable that your portfolio is in experienced hands that can navigate the market as situations change.
You prefer a more disciplined investment approach: An investment advisor helps you to avoid the emotions associated with buying and selling on your own, thereby alleviating stress. You can avoid panic when markets fall, and know that an individual is managing your money on your behalf.
You want total control: Your managed account advisor will be making the decisions on which assets to buy and sell. You will not be able to direct individual purchases without communicating with your advisor. So if you like to have control over the investments you hold in your portfolio or the precise timing of your trades, a managed account may not be the best option for you.
You want low fees: The convenience of having someone manage your money is not free. Managed account advisors charge a fee for their services, which are often based on a percentage of your assets. You pay the fee in exchange for having someone monitor your investments to make sure they perform in line with your appetite for risk and your financial goals.
Robo-advisor services are similar to managed accounts in that you largely give up control over your assets. Differences involve the degree of human oversight, costs and set up.
Setup: Setup is typically fast, as the computer software or algorithm will ask the investor a few questions involving their preferences before assigning the assets to a strategy.
Strategy: How assets are allocated are typically determined by the questions the client answers – usually around income, risk tolerance and preferred time horizon. There is little guidance or human interaction as the questions and allocations are determined by the computer software. Some themes available from robo-advisors include but are not limited to principles such as tax-loss harvesting, sustainable investing and the traditional indexing to a benchmark.
Costs: Costs are typically lower than actively managed accounts. There is minimal oversight, and the strategy and assets will turn over less frequently. Fewer transactions usually mean fewer fees. However, this also means that when circumstances in the markets change, there are few options available for your portfolio beyond what is automated on the outset.
This type of account puts you in charge of managing your investments and is designed for those with a high degree of comfort with the market. You decide what assets – be it stocks, bonds, options etc. – to buy and sell, and when. You request the trades—all the brokerage does is execute them.
Typically, you don’t get access to an investment advisor with a self-directed brokerage account, which means you’re responsible for monitoring and managing your investments on your own.
Consider some of the benefits of a self-directed brokerage account:
You’re the decision-maker: You call the shots. That means your portfolio is entirely in your hands, which could be a good thing if you’re an active investor or trader who likes to be involved in the day-to-day management of your investments.
Your costs may be lower: With a self-directed brokerage account, you’re generally charged per transaction. In other words, the only time you pay a fee is when you buy or sell. Unlike a managed account, there is no advisor fee, so a self-directed brokerage account may be a less expensive option if you don’t trade very often.
You may have more options: Self-directed brokerage accounts often offer more flexibility than managed accounts when it comes to available investment options.
It takes time: Without an investment advisor, you’ll need to spend time researching the markets and determining which investments fit your goals and situation. You’ll also need to monitor and manage your portfolio on a consistent basis. All of this can be time-consuming, and potentially stressful.
It requires discipline: Volatile markets can overwhelm novice investors which may be more prone to emotional or impulsive decision making. This could damage long-term results. In many cases self-directed accounts are better suited for advanced investors.
It lacks professional input: There are many facets to investing, like taxes, themes, risk tolerance and strategy. Using a self-directed account puts the onus on you to make informed decisions around portfolio allocations. Like robo-advisors, you won’t get the professional investment advice or analysis that you do with a managed account.
Domain Money’s offerings
Domain Money offers both managed accounts via our actively managed strategies and self-directed brokerage account options. All you need to do is decide which is appropriate for your goals and the type of investor you are, and we’ll help you take care of the rest. Domain Money is not a robo-advisor.
Our actively managed investment strategies focus on long-term growth and include allocations to both stocks and cryptocurrencies. Just select the actively managed portfolio that’s right for you, and we’ll do the rest.
Domain Money Advisors, LLC is providing this information for informational purposes only. While Domain Money Advisors, LLC believes that the information contained herein is reliable and derived from reliable sources, it makes no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information. Domain Money Advisors, LLC, and its parent company, Domain Money, Inc., expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed. The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities or cryptocurrency, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service. Investing comes with inherent risks and you should always invest within your means and risk tolerance. Past performance is not an indication of future returns and you should always consult a financial advisor prior to making investment decisions. Please see important disclosures at https://domainmoney.com/legal