Is self-directed investing right for you?

If you're looking for more control over your investments, self-directed investing may be worth exploring. Today's digital investing platforms make it easier than ever to research investments, build a portfolio and place trades online—all without working through a traditional broker.

Whether you're new to investing or simply prefer a hands-on approach, understanding how self-directed investing works can help you decide if it's the right fit for your goals.

What is self-directed investing?

"Self-directed is a hands-on way for an investor to participate in the markets," explains Patrick Lane, Manager, Client Solutions Center at First Citizens Investor Services.

Sometimes called do-it-yourself or DIY investing, self-directed investing puts you in control over how you invest. You can research investments, build a portfolio and place trades directly from your computer or mobile device. Many platforms also provide tools, educational resources and market data to help you make informed investment decisions.

How does self-directed investing work?

A self-directed investing account gives you the flexibility to choose and manage your investments online.

To get started, you'll open and fund a self-directed brokerage account. You can transfer money from your checking or savings account, move funds from another brokerage or roll over an old 401(k) or other employer-sponsored plan.

Once you fund the self-directed investing account, you can begin building your portfolio. You'll likely have many types of investments to choose from, including:

• Individual stocks
• Exchange-traded funds, or ETFs
• Mutual funds
• Government bonds

Unlike robo-advisors, which recommend and manage a portfolio for you, self-directed investing gives you full control over every investment decision. You're responsible for researching investments, evaluating risk, monitoring your portfolio and deciding when to buy or sell.

Pros and cons of self-directed investing

Self-directed investing gives you the flexibility to build and manage your own portfolio, but it also comes with greater responsibility. There are notable benefits and trade-offs when it comes to self-directed investing.

Key considerations

Deciding if self-directed investing is right for you

Self-directed investing can be a good fit if you enjoy researching investments, want greater control over your portfolio and feel comfortable making your own investment decisions.

"The simplicity and low investment minimum are two things that are appealing," Lane says.

It can also be a good entry point if you're new to investing because you don't have to build a complex portfolio from scratch.

"You can buy one ETF and gain exposure to the entire S&P 500 without a lot of time or effort," he adds.

However, it's important to note that self-directed investing isn't completely hands-off. It requires a willingness to stay engaged with your investments, along with the discipline to stick to your strategy. Lane says one of the biggest challenges is managing emotions during periods of market volatility. "It's easy from an emotional standpoint to decide to buy," he explains. "What's harder is knowing when to sell, especially if the market is volatile or a stock is down." Establishing clear investing goals and buy-sell rules before investing can help reduce emotional reactions to short-term market swings.

While self-directed investing requires more involvement than other investing approaches, it also gives you the flexibility to create your own investment strategy and build your portfolio over time. For many investors, this sense of control is part of the appeal.

The bottom line

Self-directed investing can be a rewarding way to build wealth if you enjoy learning about investing and want greater control over your portfolio. With today's digital investing platforms, it's easier than ever to get started. Understanding the time, discipline and responsibility involved can help you decide whether it's the right investing approach for your goals.