Why self-select DIY ISAs outperform managed portfolios

A self-select stocks and shares ISA could be for you if you’re looking to choose your own ISA investments. With this type of account, you have full control over your ISA savings.

If you’re thinking of managing your own ISA instead of buying into a managed portfolio, here are two very good reasons to pick your own investments.

Control – you are in charge- you can pick you own investments, including US stocks, UK AIM shares, funds, ETFs, bonds and even emerging markets. Some say the best investment strategy is to buy into a brand that you love. So if you buy loads of stuff off Amazon, why not buy some of their shares for your portfolio? Research from Interactive Investor showed that DIY investors outperformed the benchmark over 5 years. The study also found that women outperformed men.

Costs – it’s much cheaper to have an investment ISA account where you pick your own stocks. Interactive Brokers offers a free investment ISA account, whereas managed ISA funds like Scottish Friendly charge up to 1.5% a year for buying into one of their funds.

What is a self-select stocks and shares ISA?

A self-select stocks and shares ISA is an ISA account that enables you to pick your investments yourself.

Sometimes called do-it-yourself (DIY) ISAs, they are aimed at more experienced investors who want to make their own investment decisions.

Self-select stocks and shares ISAs typically offer access to a range of investments including stocks, investment funds, investment trusts, exchange-traded funds (ETFs), and bonds.

They are offered by a range of companies including Hargreaves Lansdown, AJ Bell, Interactive Investor, Barclays, and Fidelity.

What are the advantages and disadvantages of self-select ISAs?

Advantages include:

• More control –  With these accounts, you decide how your money is invested
• More investment options – Self-select ISAs tend to offer access to far more investments than managed ISA accounts offer
• More flexibility –  With these ISAs, you have a lot of flexibility.

Disadvantages:

• Risk levels are higher – Self-select ISAs can be higher risk than other types of ISAs. You are responsible for your own investment decisions and there is no guarantee that you will make money
• More time is needed –  Managing a self-select ISA takes time and effort. With these ISAs, you need to keep an eye on your investments
• Platforms can be more complex – Self-select ISA platforms tend to be more complex than managed ISA platforms.

Self-select ISAs vs managed ISAs: what’s the best option?

The best type of stocks and shares ISA for you will depend on a few factors, including:

• Your investment experience – Self-select platforms are more suited to those with a lot of investment experience who are comfortable managing their own money. By contrast, managed platforms are generally more suited to beginner investors who don’t want to choose their own investments
• The time you have to devote to managing your investments – Self-select platforms are more suited to those who have time to manage their money. If you don’t have the time to manage your investments, a managed ISA product may be more suitable for you.

3 of the best self-select ISAs for DIY investors

The best platforms for direct-to-consumer investing through an ISA is one that:

• Allows you to build an investment portfolio that is in line with your financial goals and risk tolerance
• Provides access to the assets you want to invest in (e.g. shares, funds, ETFs, etc.)
• Is easy to use and offers a good level of customer service
• Has competitive fees and charges
• Is regulated by the Financial Conduct Authority (FCA) and provides protection under the Financial Services Compensation Scheme (FSCS).

If you’re looking for recommendations, some of the best platforms for direct-to-consumer investing include:

Hargreaves Lansdown

With Hargreaves Lansdown’s stocks and shares ISA, you get access to a vast range of investments including domestic and international stocks, over 4,000 funds, bonds, and more.

You also get access to plenty of research and investment tools to help you make investment decisions.

On the downside, fees are higher than those of some other self-select ISA providers.

For funds, the annual account charge is:

• 0.45% on the first £250,000
• 0.25% on the value between £250,000 and £1m
• 0.1% on the value between £1m and £2m
• 0% on the value over £2m

There are no fees for buying or selling funds and fund discounts negotiated by Hargreaves Lansdown save an average of 17% on the fund ongoing charge figure (OCF) for HL clients

For shares, the annual account charge is 0.45%, capped at £45 per year (£3.75 per month).

Investors also face charges to place share trades. These are:

• £11.95 per trade if you made 0 to 9 deals in the previous month
• £8.95 per trade if you made 10 to 19 deals in the previous month
• £5.95 per trade if you made 20+ deals in the previous month

But HL offers free monthly investing via direct debit into shares, selected investment trusts and selected ETFs, VCTs, Gilts and Bonds.

HL clients benefit from highly competitive interest rates for cash held in investment accounts

All accounts have free regular savers (i.e. no commission) and free reinvestment of income (no commission). This applies to funds and non-funds.

AJ Bell

With AJ Bell’s stocks and shares ISA, you get a solid platform that is well laid out and very user friendly.

You also get access to a wide range of investments including stocks in more than 20 markets, over 2,000 funds, ETFs, and bonds.

On the downside, there are less investment options than on Hargreaves Lansdown.

Annual account charges for AJ Bell’s stocks & shares ISA are as follows:

• 0.25% per year on the first £250,000 of funds
• 0.10% on the value of funds between £250,000 and £500,000
• 0% on the value of funds over £500m
• 0.25% (max £3.50 per month) on shares (including investment trusts, ETFs, gilts, and bonds)

Trading fees are as follows:

• £9.95 for shares
• £4.95 for shares if you made 10+ share deals in the previous month
• £1.50 for funds

Interactive Investor

With Interactive Investor’s stocks & shares ISA you get a solid platform with a flat-fee structure. This means that annual account charges do not get bigger as your account grows in size.

You also get access to more than 40,000 UK and international investment options.

On the downside, Interactive Investor doesn’t offer as many investing tools as some other providers do.

In terms of fees and charges, Interactive Investor offers three different service plans. These are:

• Investor essentials – This is a low-cost plan for those investing up to £50,000. It costs £4.99 per month and trades are £3.99 each.
• Investor – The monthly fee for this plan is £9.99 and trades are £3.99 each. You get one free trade per month.
• Super Investor – The monthly fee for this plan is £19.99 and you get two free trades per month. Other trades cost £3.99 each.

Self-select ISA comparison

You can use our stocks and shares ISA comparison table to find out which account is best for you. When comparing self-select stocks and shares ISA platforms, there are a number of things to consider including:

• The range of investment options each platform offers – Some providers offer more investment options than others.
• The research and investment tools offered by each platform – Some ISA providers offer a range of features designed to help you make investment decisions. Others, however, just offer basic trading and investing services.
• The fee structure of each platform – Fees and charges to consider include annual custody charges, entry and exit fees, trading commissions, and FX charges. Some ISA providers offer fee calculators that allow you to compare fees. These can be useful when comparing platforms.
• The user-friendliness and reliability of each ISA platform – Ideally, you want a platform that is well laid out, easy to use, and can be accessed via an app. You also want a platform that is reliable and always available.
• The customer service levels of each ISA provider – Some investment providers are better than others when it comes to providing support.

When choosing an ISA, it can be a good idea to read user reviews of a few different providers. Our reviews can give you a better idea of the provider’s customer service levels and reliability.