With social media fuelling a new wave of interest in investing, and two-fifths of investors now using it to help inform their decisions, more people than ever are looking beyond traditional savings accounts to grow their money. However, with so many investment options available, knowing where to begin can feel overwhelming.
Understanding the key differences between DIY investing, a more hands-on approach, and managed Stocks and Shares ISAs can be a useful first step before putting money to work. To help households navigate their options, Derence Lee, Chief Finance Officer at Shepherds Friendly, has shared his expert insights into both approaches.
Taking control with DIY investing
DIY investing is often seen as the traditional route into the markets. “DIY investing involves building and managing your own portfolio, which can include individual stocks, shares, bonds, and other financial assets, with the aim of seeing those investments grow in value over time,” explains Lee.
“DIY investing puts you firmly in control of your investment strategy,” Lee says. “You decide where your money goes, when to rebalance your portfolio, and how to react to market movements. The rise of online investment platforms, trading apps, and robo-advisers has made investing more accessible than ever, particularly for first-time investors who value flexibility and autonomy.”
However, Lee notes that greater control also comes with greater responsibility. “DIY investing can require more time, research, and the confidence to make informed decisions. As with any form of investing, the value of investments can go down as well as up, and investors may get back less than they originally invested. DIY investors may also be more exposed to market volatility and emotionally driven decisions, so it’s important to understand your attitude to risk, investment objectives, and the length of time you’re prepared to invest before doing so.”
Lee said this means the approach tends to suit a particular type of investor. “DIY investing can be rewarding, but it’s worth being realistic about what it involves. You’ll need to stay on top of market movements, make active decisions about buying and selling, and have the confidence to build and manage your portfolio. It tends to appeal to experienced investors, those with specific investment preferences, or people who enjoy being closely involved in their finances and have a higher tolerance for risk.”
Letting the experts handle it with a managed ISA
A managed Stocks and Shares ISA, such as an Investment ISA, is an investment account in which professional fund managers make day-to-day investment decisions on your behalf. Investors choose a provider, decide how much to invest, and leave the portfolio to be managed by investment professionals.
“A managed ISA lets you take advantage of the potential for market growth without needing to become an investment expert yourself,” explains Lee. “You choose a provider, decide how much to pay in, and let the professionals manage the rest. Some providers also aim to smooth out the sharper ups and downs that can come with investing through a process known as smoothing, which can help give investors a greater sense of consistency over time.”
Lee also highlights the tax advantages. “You can invest up to £20,000 each tax year into a managed ISA without paying tax on any returns you receive, making it a tax-efficient way to grow your money. You can also use your ISA allowance for DIY investing through a ISA, but managing those investments yourself requires a more hands-on approach. Outside an ISA, investment gains may be subject to income tax or Capital Gains Tax, depending on your circumstances.”
Lee said a managed ISA can suit a wide range of people. “A managed ISA is worth considering whether you’re new to investing and still building your knowledge, a busy professional who doesn’t have hours to spend monitoring the markets, or simply someone who prefers to let experts handle the details,” Lee adds. “Your money is managed by experienced investment professionals who actively make decisions on your behalf, drawing on research, market analysis, and diversification strategies to help manage risk and aim for long-term growth. The lower level of effort required, combined with the potential for higher returns than a Cash ISA, makes it an accessible option for many.”
Weighing up control, tax and diversification
Lee summed up the key differences between the two approaches. “A managed ISA can offer a simple and tax-efficient way to invest, as any returns are free from UK Income Tax and Capital Gains Tax. By comparison, the tax you pay on gains from DIY investing outside an ISA depends on factors such as the types of assets held, investment performance, and your personal tax position.”
Diversification, an investment strategy that spreads money across different types of investments to help reduce risk, is another important consideration. “Many managed ISAs are designed to spread investments across a range of asset classes to help strike a balance between risk and reward. With DIY investing, however, the level of diversification depends entirely on the individual investor’s decisions, which can increase exposure to risk if a portfolio is not properly balanced. Investors can also build a diversified portfolio through a DIY Stocks and Shares ISA by choosing a broad mix of investments.”
“With any type of investing, it’s important to make sure you are as informed as possible and to choose an option that genuinely suits your personal circumstances, financial goals, and attitude to risk. If you’re unsure which option is right for you, speaking to a financial adviser can help you consider your options in the context of your own circumstances,” says Lee.
As with any investment, both approaches carry risk, and investors may get back less than they originally invested. Past performance is not a reliable guide to future returns. Those seeking further information on investing, saving, and financial planning can find additional resources on the Shepherds Friendly website.