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To ISA or Not to ISA: Should You Let Experts Manage Your Stocks and Shares or Do It Yourself?

November 11, 2024

The introduction of national insurance on employer pension contributions could generate billions for the Treasury, according to Sir Steve Webb, a former pensions minister.

The world of investing is full of potential and opportunities for individuals to capitalize on. But what’s the best way to grow your wealth when it comes to stocks and shares?

DIY investing has accelerated at a rapid pace in the post-pandemic landscape, with 56% growth in the number of customer accounts since 2020. This has helped to create a DIY investment market worth £392 billion as of Q4 2023, representing a growth rate of 14% over the past year.

As of Q4 2023, there were over 10.2 million investing accounts in the United Kingdom. In comparison, 6% of UK adults have stocks and shares ISA in 2024. This indicates that more individuals are opting to go it alone when it comes to investing, or are seeking alternative investment options.

Is this this the right thing to do? Or should investors embrace the convenience of stocks and shares ISAs? Let’s take a deeper look at an approach to investing that brings a unique set of advantages and disadvantages:

What is a Stocks and Shares ISA?

While cash ISAs are a popular way for investors to gain a predictable and steady return on their savings through fixed rates, a stocks and shares ISA takes this concept and invests the savings in carefully selected stocks and shares.

This means that your contributions are invested rather than held in cash. Although some stocks and shares ISAs can allow investors to choose where their money is invested, this process generally involves your savings being managed on your behalf.

Stocks and shares ISAs can be an excellent investment option for you if you don’t have the time to extensively research stock markets to identify opportunities yourself.

Usually, you’re afforded a little bit of freedom to select your level of risk, which will inform your ISA’s manager on the type of stocks you’re willing to add to your portfolio. Higher-risk ISAs will generally involve selecting high-potential stocks that offer more growth potential but far greater associated risk.

Two other forms of ISA, lifetime ISAs and innovative finance ISAs, fail to offer the unique earning potential of stocks and shares ISAs.

With stocks and shares on stock markets like the FTSE 100 or S&P 500 historically growing in value, investors can be reasonably confident that they can grow their wealth with the help of somebody to manage their investments on their behalf. But is it really better than going it alone?

Tax Benefits of Stocks and Shares ISAs

The biggest appeal of stocks and shares ISAs is that investors don’t need to pay capital gains tax, income tax on dividends, or income tax on interest when using the investment strategy.

This means that if your ISA increases in value, you won’t be obligated to pay more tax as a result.

However, there are some things to keep in mind. For instance, you can’t use losses within your ISA to offset any gains you’ve made elsewhere. You can also only pay £20,000 into all your ISAs combined within a tax year.

For high-net-worth individuals, this may make stocks and shares ISAs a little limiting when alternative investment options exist. However, DIY investing is also prone to a number of tax considerations and you could face capital gains and dividend tax.

In the UK, there are currently annual tax-free allowances for capital gains and dividends, which stand at £3,000 and £500 for the 2024/25 financial year.

Higher DIY Returns?

The big question is whether you could make more money as a DIY investor or by selecting a stocks and shares ISA. Frustratingly, the answer to this question is: it depends.

If you’re capable of dedicating plenty of time and research to your DIY portfolio, it’s entirely possible to make more market decisions that align better with your goals and strategy.

However, your stocks and shares ISA will be as strong as the person managing it. For this reason, it’s important to always spend time looking at the long-term performance of the investment firm you’re trusting to manage your ISA on your behalf.

It’s also worth noting that management fees do eat into your stocks and shares ISA holdings, which can make DIY investment more appealing for those willing to go it alone. However, DIY investing also involves transaction fees and administrative fees that can become costly over time.

Growing Flexibility

Although DIY investing gives you the freedom to manually pick and choose your favourite stocks, stocks and shares ISAs are becoming increasingly flexible in recent years.

Round-up apps have helped to create spare change ISAs where investors can build a nest egg by contributing small amounts every day, while modern investment firms are offering far more control over factors like risk appetite and ethical considerations for your stocks and shares ISA.

This aids investors in adopting an investment strategy that aligns with their DIY goals, all without having to dedicate significant amounts of time to researching stocks and shares to add or remove constantly.

ISA or DIY?

So, what’s the best approach to investing in stocks and shares that fits your needs? Again, the answer depends on the level of time and commitment you have to build your own investment strategy to carry out.

For most people, the tax appeal of stocks and shares ISAs, coupled with the convenience of having your investment strategy managed by an industry professional, is a highly appealing and reliable approach to wealth management.

To go DIY can be a highly rewarding experience for many investors, but for those seeking to build their wealth consistently and effectively, the appeal of a stocks and shares ISA can’t be ignored.