Self-Directed vs. Automated Investing: Which is Better?

Investing is more accessible than ever thanks to the rise of online and mobile-focused brokerages. But just because it’s more accessible doesn’t mean that taking an active hand in managing your portfolio is the right move.

Investing can be difficult, time-consuming, and complicated. Depending on your goals, risk tolerance, and experience, you might be better off using an automated investing option.

Key Takeaways

  • Self-directed investing refers to managing your investments on your own.
  • Automated investing can mean many things, but all involve a system for making and managing investments automatically.
  • Robo-advisors are one way to automate your investing.
  • You can also automate investments with recurring investment orders or by working with an advisor.

Self-Directed vs. Automated Investing: Key Differences

Self-directed and automated investing are two very different ways to invest. The obvious difference between the two is the level of involvement that you have, but there are other implications that can help you decide between them.


One massive difference between self-directed and automated investing is in the fees that you pay.

With self-directed investing, you’re not paying any management fees or other costs related to having someone else automate your investments. At most, you’ll have to pay commissions and mutual fund or ETF expense ratios.

Many systems for automated investing come at a cost. For example, working with a robo-advisor means paying the robo-advisors management fees, which are often about 0.25%. Having a human financial advisor often costs even more.

Some forms of automated investing, such as setting up automatic transfers from savings to a mutual fund, can avoid these management fees. However, these cheaper ways of automating things may still leave you with some work to do, such as regular rebalancing of your portfolio.


Another major difference between self-directed and automated investing is the time that you have to spend.

With self-directed investing, the time commitment is much higher. Beyond the regular management of your portfolio, such as rebalancing or buying and selling shares, you’ll need to spend time researching investment opportunities.

This research can be fun for some people, but it also takes a lot of effort and knowledge.

Automated investing, on the other hand, requires very little time. Once you’ve chosen how to automate your investments, you let the system you choose handle the day-to-day. All you have to worry about is choosing when to invest or withdraw funds.

Investment Strategy

One clear advantage that self-directed investing has over automated investing is that it is much more flexible when it comes to how you can invest and the strategies you can use.

If you’re researching investment opportunities and doing the buying and selling yourself, you have the freedom to invest in specific stocks and bonds or to use derivatives such as options or futures. You can even invest in alternative assets or securities like commodities, crypto, and precious metals.

Many systems for automated investing, such as robo-advisors or automatically purchasing shares of a mutual fund leave you with less flexibility. Instead, you have to accept a more cookie-cutter portfolio. You can choose one that aligns with your needs and goals but can’t customize it to perfectly match what you’re looking for.

Self-Directed Investing

Self-directed investing gives you full control over how you invest your money. You have the freedom to buy a wide range of securities including individual stocks, bonds, funds, derivatives, or allocate your money in any way that you see fit.

This level of control gives you a lot of power to customize your portfolio to align with your needs and goals. However, it also puts the onus on you to research the market and invest wisely.

Before trying self-directed investing, consider the pros and cons.


  • Total Control How and When Your Money Gets Invested

  • Access to a Wider Range of Investments

  • Lower Costs

  • Excitement of Managing a Portfolio


Some of the advantages of self-directed investing include:

  • Total control over how and when your money gets invested.
  • Access to a wider range of investments, such as derivatives, futures, crypto, and more.
  • Lower costs because you don’t have to pay management or advisory fees.
  • For some, managing an investment portfolio can be fun.


Some drawbacks of self-directed investing include:

  • Proper management of an investment portfolio can be highly time-consuming.
  • You have no safety net to back you up and provide a second opinion and you’ll lose money when you make poor investing decisions.
  • Risk may be higher, especially if you use higher-risk securities and derivatives in your portfolio.
  • Managing a portfolio can be stressful especially when markets are volatile and losses are increasing.

Automated Investing

There are many ways to automate your investing. At the most basic level, setting up automatic transfers from your bank account to a brokerage account and buying shares in an ETF or mutual fund is automated investing. There are also more advanced ways to automate your portfolio, such as working with a robo-advisor or hiring an investment advisor to help manage your portfolio.

If you want to be hands-off with your portfolio, automated investing can be highly appealing, but think about the pros and cons before committing.


Some advantages of automated investing include:

  • You don’t have to spend a large amount of time researching the market and managing your portfolio.
  • You get professional advice on your investments and how to maximize their value.
  • Could be lower risk, especially if you chose a low-risk investment portfolio.


Some drawbacks of automated investing are:

  • Robo-advisors and financial advisors typically charge a management fee, which increases your investment costs.
  • You can’t personalize your portfolio as effectively as you can when using self-directed investing.
  • Some advisors have minimum balance requirements that you might not meet.

Self-Directed vs. Automated Investing: Which Is Right for You?

Choosing between self-directed investing and automated investing means asking yourself a few questions.

Do you feel comfortable with money and the stock market? If you feel like you know what you’re doing, self-directed investing might be a good option. If you’re more of a novice or don’t feel confident managing an investment portfolio, automating things is the better move.

Are you happy with a more standard portfolio, or are you in a unique situation that requires a highly specialized investment strategy? If a relatively standard portfolio of stocks and bonds is a good fit, consider automated investing. If you need a highly customized investment strategy, you’ll want to go for a self-directed option.

Finally, do you find investing fun? If you enjoy the thought of researching securities and trying to beat the market entertaining, self-directed investing could be a fun thing to do. If it’s more of a chore to you, consider automated investing and research the best robo-advisors to avoid that hassle.

Do Robo-Advisors Outperform Financial Advisors?

It’s hard to say whether robo-advisors outperform financial advisors because every portfolio constructed by either type of advisor will be different. However, keep in mind that human financial advisors tend to charge higher fees than robo-advisors, which means they’ll need to outperform robo-advisors on a pre-fee basis to have the same overall returns.

What is the Most Profitable Form of Investing?

Investing is all about managing risk and reward. Riskier investments tend to have higher potential returns, but you could also lose money. Stocks are commonly viewed as a higher-risk, higher-reward asset, though derivatives, like options, can come with even higher profit potential, along with higher risk.

What is the Safest Form of Investing?

Almost all investing is subject to risk. You can keep your money safe in an FDIC-insured savings account, but you won’t earn much of a return.

A popular option for those looking for a safe investment is high-grade bonds, such as US government bonds.

Bottom Line

Self-directed and automated investing are both fine ways to manage your portfolio. Which option you choose largely depends on your investing goals, experience, and personal preferences.

If you feel comfortable with investing and find the idea of managing your portfolio intriguing, consider taking an active role in managing your portfolio. If you’re newer to investing or find the thought of managing your portfolio to be a chore, look for a way to automate the process.

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