In the age of robo-advisors and algorithm-driven platforms, investors are faced with a difficult but important choice: Do you hand over the wheel to automation or take full control of your portfolio?
With automation, you can enjoy the convenience of hands-off investing, but some people don’t like the lack of control that comes with it. While self-directed investing offers control, but requires a lot more precision and understanding.
Both paths offer their own sets of benefits, but which one is actually better for you?
Let’s break it down.
What Is Automated Investing?
In simple terms, automated investing is a hands-off approach to investing where algorithms manage your portfolio based on your goals, risk tolerance, and time horizon. You can find it through platforms called robo-advisors.
These tools handle everything from rebalancing to tax-loss harvesting, all without you having to lift a finger. And before you decide if it’s right for you, you need a proper understanding of what is automated investing at its core.
If you don’t like spending hours researching stocks or checking market charts, just set your preference and let the platform do it for you.
What Is Self-Directed Investing?
Just as it sounds, self-directed investing allows you complete control over your investment decisions and choices. There’s no algorithm or advisor working on your behalf. You get to choose where to invest and what to invest in.
This approach is a bit more complex since you, as an investor, would need an adequate understanding of investment strategies, asset classes, and other complexities to make smart and informed decisions.
Key Differences Between the Two
The primary factors that separate automated investing from self-directed investing, and can help you choose one based on your goals and preferences, include:
Level of Control
Since automated investing relies on automation and algorithms to make investment decisions on your behalf, you have little to no control over your portfolio. But with self-directed investing, you’re making every single decision yourself.
Flexibility and Diversity
Automated investing comes with a limited list of asset classes and types. Since the algorithm needs to be trained on strategy and risk management, there’s not a lot you can choose from, but the popular assets are usually available.
Self-directed investing offers more diversity. You can go for index funds, dividend stocks, or even crypto – whatever fits your strategy.
Returns
If you know what you’re doing, self-directed investing can outperform automated strategies, especially if you spot opportunities early or have a niche market advantage.
But with great returns come great risks, which is where automated investing wins. It’s less risky but can still provide decent returns.
Time Commitment
With automated investing, you simply set your preferences and let the robo-advisors do their thing. But self-directed investing requires active research and strategic planning.
Which One Should You Choose?
If you’re a beginner who wants to invest but doesn’t know where to start, automated investing is a great tool. You can enjoy a passive and stress-free experience with platforms like SoFi, get average but steady returns, and won’t have to spend a lot of time managing your money.
But if you prefer a challenge, are good at researching, or want full control over your investment choices, go for self-directed investing.
You can even choose to combine both.
