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Managed Account or Self-Directed Brokerage Account – Which Is for You?

When opening an investment account, it can be hard to know what sort to choose. Two options are a managed investment and a self-directed brokerage account.
Today we’re going to look at what these two accounts are, how they’re different and which we think you should choose.

Introducing… a managed account

A managed account gives your investment advisor complete control over your money. Your advisor decides which securities to buy and sell or whether to hold your money in cash. Once they’ve learned about your investment goals, they will run the investment portfolio for you.
Managed accounts are usually active, where an advisor chooses the securities to buy and sell. But they can be passive portfolios that buy and sell securities in order to track the market over time. Passive investing is what we focus on at Sarwa. Here’s why we believe it works.

Some benefits of a managed account

Investors are freed from day-to-day decision making:

This saves you a lot of time, as your investment advisor will research what stocks to buy and sell and when. You just let them get on with it.

You get professional supervision:

It allows you to hand over control to an expert whose day job it is to manage your money. You don’t have to try to become an expert overnight. You just employ one.

It creates a disciplined investment approach:

It removes the emotion from investing, as an advisor manages your money and the worry. You don’t need to panic if the market goes down, as your advisor worries for you!

A few drawbacks of a managed account

You give up control:

A managed account means that you give up control of your money. This means that you aren’t able to change the direction of your investments. Your advisor has to do it for you.

There are costs:

An investment advisor won’t work for free, so there will be some (hopefully, low!) costs. Still, expertise doesn’t come for free.

Introducing… a self-directed brokerage account

A self-directed brokerage account allows you to manage your money directly. You have complete control over to invest. This means that you are the one who is choosing when to buy and sell securities. In this instance, you don’t have an advisor to call upon for advice.

Some benefits of a self-directed brokerage account

You make your own decisions:

The main advantage of a self-directed brokerage account is that you are the one who makes decisions as to how to allocate your funds. For better or worse, the destiny of your portfolio is in your hands.

Lower costs:

Often, self-directed brokerage accounts are very low cost as the only cost is the transaction fee for buying and selling. There is no advisor to pay.

Greater flexibility:

A self-directed brokerage account gives investors access to a wider range of investment choices than the default ones presented in the plan

And a few drawbacks of a self-directed brokerage account

Managing your retirement savings requires discipline:

Self-directed brokerage accounts are designed for advanced investors who know how to research and manage their investments. Unfortunately, individual investors often fall victim to the “behavior gap” due to mistakes related to emotional decision-making.

Time consuming:

A self-directed brokerage account requires constant monitoring and attention. Unless you’re always up to date with the markets and news, it means you’re the only one responsible. This can be quite stressful and time consuming occupation.

Diversification:

Personal investing is risky. One bad investment can wipe out your portfolio. However, an investment portfolio managed by a professional is less likely to suffer extreme volatility because of greater diversification.

You give up access to professional investment advice:

Having an investment professional advice you can help you to navigate the ins-and-outs of the market and develop an investment strategy that will help you to reach your investment objectives.

So which one is right for you?

As a rule of thumb, unless you’re the sort of person who loves researching investments and following the market, you should choose a managed account. Managing investments is not for amateurs. So, unless you’re (practically) a professional, pay a professional to do it for you, or else you run the risk of being caught out by the market.As legendary investor Warren Buffet says: “Risk comes from not knowing what you are doing.”

One of the reasons for this is that managing investments is time-consuming. We all lead busy lives and we likely don’t have time to manage our money. A managed account lets you ‘set it and forget it’, with investments made on autopilot. If you choose to use a robo-advisor, like Sarwa, who provide automated, low-cost portfolios, ‎these services are done at a fraction of the traditional cost. What’s more, investment techniques, like auto rebalancing are included too.

Another reason to use a managed account is that it removes the emotion from investing. Managing money is hard and hard decisions can be clouded by our emotions – we are only human after all! In fact, a MorningStar study showed that statistical speculation cost the average investor nearly 2% each year. So it pays to have an expert managing your money who will not be as prone to falling foul of their emotions, especially if markets get rough.

With the above in mind, unless you’re an expert or you can devote a significant amount of time and energy to managing your own money, it pays to have someone else do it. And that’s what we do at Sarwa. Our platform makes investments accessible and affordable to all, without the stress or the cost. So drop us a line if you’d like some advice on getting started with investing.

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