Self-Directed Investing Accounts

With a wealth of market information and up-to-the-minute news available at their fingertips 24/7, many retail investors nowadays choose to take their financial future into their own hands with self-directed investing accounts. These self-managed brokerage accounts are proving increasingly popular because they cut out the middleman, lower costs and empower investors by giving them their choice of assets to build their own portfolio or adopt flexible IRA or 401(k) plans.

This guide explains how self-directed investing accounts work, from fees to taxes and bonuses. We have also reviewed and ranked the best self-directed brokerage investment accounts in 2024.

Top Self-Directed Investing Accounts

#1
Forex.com
Bonus
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#2
Interactive Brokers
#3
NinjaTrader

What Is A Self-Directed Investing Account?

Those who decide to invest in brokerage accounts or retirement savings plans often take a backseat and either let a fund manager decide what to do with their savings or pick between a narrow choice of funds. However, an increasing number of individuals prefer to take the matter into their own hands by using a self-directing investment account that gives them full control over how their earnings are invested.

The growing popularity of this type of account is mainly a product of the internet, which has provided a wealth of financial information and tools to anyone willing to put the hours in. At the same time, individual investors can choose from a wide range of web-based brokers that facilitate self-directed investing.

Types Of Self-Directed Investment Accounts

Classic self-directed brokerage investing accounts are available from brokers that work with retail investors. Some of the big names include Vanguard, Fidelity, Charles Schwab, TD Ameritrade, E*TRADE, Interactive Brokers and Robinhood. This type of self-directed investing account may be more geared toward long-term investments, active trading or a mixture of the two.

Independent Retirement Accounts, or IRAs, are one of the most popular ways for the retail market to invest, due to their tax advantages as well as the range of available assets, which is usually wider than those in an employer-sponsored plan. Additionally, an IRA can be opened alongside a 401k or 403b, allowing investors to get the best of both worlds. IRAs are available from a large number of brokers and in alternative investments, including many of those listed above.

401(k) and 403(b)s are considered desirable since employees often gain considerable benefits from contributions by their employers. This type of account tends to be more limited in terms of self-directed investing, though some plans allow account holders under certain conditions to pick assets that are usually outside the range on offer. Fees for placing trades tend to be higher in these types of retirement accounts than in standard investment accounts or IRAs.

Health Saving Accounts or HSAs offer US investors a tax-effective way to save money for healthcare purposes. Some solutions are self-directed, with investment account holders usually choosing between a relatively limited selection of assets including mutual funds, stocks and bonds.

Assets Available On Self-Directed Investing Accounts

Some accounts—and particularly 401(k) and 403(b) retirement accounts—may be somewhat restrictive in the type of assets on offer, but with standard self-directed investing accounts you should be able to find just about any product you like with the right broker.

Moreover, some recent innovations such as fractional stocks mean that individual traders can now buy a stake in even the biggest companies with the most expensive shares.

Even so, some asset types are more commonly available on self-directed investing accounts than others, and it is worth running through them:

Pros Of Self-Directed Investing Accounts

There are several reasons traders choose a self-directed account for their investments, including the obvious – keeping control over your savings – but also some that are not so evident:

Cons Of Self-Directed Investing Accounts

At the same time, this type of account will not suit everyone, for various reasons:

Comparing Self-Directed Investing Accounts

The best choice of self-directed account will depend on your individual needs, and in particular whether you are looking to open a standard brokerage account, an IRA, 401(k) or something else.

However, there are a few important factors to take into account when choosing self-directed brokerage accounts:

Fees

Fees come in a variety of forms. TD Ameritrade, Charles Schwab, Fidelity Morgan Stanley Chase and many other self-directed investing accounts offer 0% fees on stock trades, but many other brokers will charge a commission per trade. However, the importance of trading commissions depends on how actively you intend to trade, as there may be other costs too:

Market Access

Different brokers and trading platforms offer access to different assets and markets. Most self-directed accounts will offer exposure to a wide range of markets through ETFs and mutual funds, but those who want to be more proactive with their self-directed account will value having a diverse range of assets on offer, such as CFDs and cryptos.

Promotions

Some self-directed investing brokers offer users incentives, such as bonus money for signing up. These are usually tiered, meaning you will earn more if you deposit a larger initial amount. For example:

Tools & Education

Analysis tools and educational resources are useful for self-directed trading accounts as they provide investors with a handy way to read markets and research investments. These can come in the form of online guides, up-to-date charts, and even robo-advisors or similar automated tools that help you pick investments.

However, since most self-directed accounts are offered by discount brokers, you shouldn’t expect the most sophisticated tools or one-to-one advice from human professionals.

Support

Choose a broker that offers quick and professional customer support to avoid headaches if anything goes wrong. The best brokers with self-directed investing accounts will have 24/7 support lines in case of an emergency. Some brokerages also allow you to make transactions over the phone, but be aware of additional charges this may incur.

Security

When it comes to a self-directed investment account—particularly one used for retirement savings—your security should be paramount. Investors can protect themselves by choosing a highly-rated broker that is overseen by a national regulator and covered by a body such as the Federal Insurance Deposit Corporation.

Research your broker carefully before signing up and look for one that is well-reviewed and offers security features such as two-factor authentication. Alternatively, head to our list of the top self-directed investing accounts.

Tips For Self-Directed Investors

There is no killer strategy or magic bullet that will turn a newbie into a millionaire overnight, but there are some things to remember when setting out on your self-directed investment journey:

ETFs

ETFs are a popular way to invest because they cut down risk by giving you a basket of equities, rather than a single stock, and lower costs. Since in the long-run a major index like the S&P 500 will normally continue to grow, it is considered a safer bet for investors who are in it for the long-term.

Hedging

At the same time, ETFs can be used to gain exposure to commodities and other investments that can act as a hedge if the stock markets begin to fall. While some commodities tend to go up during periods of uncertainty, you could also directly bet against an index by investing in an ETF like the Short QQQ, which takes a leveraged short position on the NASDAQ.

There are many other ways to hedge, including through real estate, direct investment in precious metals, investment in private debt or equity and more.

When To Enter A Market

Another important consideration is choosing the right time to enter a market. If you invest all your money at the top of a bull market, you could quickly make losses that take years to recoup when the stock market falls.

One strategy used by investors to avoid this is dollar cost averaging, in which they make regular investments instead of investing a lump sum at once. This could be in the form of a monthly percentage of your salary, or a weekly or even daily smaller sum. Trading fees are important for this.

Some investors prefer to time their investments by ‘buying the dip’ – a phrase referring to buying at a time when they believe the asset’s value has fallen below a level they are happy buying it at, meaning the investment represents good value.

Be careful if you try to buy the dip during a period of high volatility – this can prove to be costly, as the price can continue to fall beyond expectations. This has given rise to the expression ‘trying to catch a falling knife’, used to describe investors who try to time their investment to coincide with the asset’s lowest price before its next rally.

Final Word On Self-Directed Investing Accounts

Investors can cut out unnecessary fees and take control of their financial future by choosing a self-directed brokerage account. As well as benefiting from sign-up promotions, this type of investment account allows traders to pinpoint the exact area they wish to invest in, while also removing fees associated with account managers.

It is important to choose the right brokerage with self-directed investing accounts, placing particular focus on fees and security. Moreover, you are taking responsibility for your investments, which means you will need to spend the time to properly research the markets and to adopt a strategic and disciplined approach. However, for those willing to do the legwork, self-directed trading accounts can be among the most rewarding and interesting ways to invest in your financial future.

Head to our ranking of the best self-directed investing accounts to get started.

FAQs

What Is A Self-Directed Investing Account?

A self-directed investing account is exactly what it sounds like – a brokerage account where the investor makes their own decisions on which assets to pick. While the self-directed investor may miss out on the benefit of an established professional’s expert advice, they can ultimately save money on fees and find excellent opportunities by taking the reins themselves.

What Is The Best Self-Directed Investment Platform?

There are many self-directed investment accounts available from a range of online brokers. The best for you will depend on what your needs are – is this a 401(k) or IRA? Are you looking to invest in a particular market or asset? Some other things to look out for when comparing brokers include fees and security. Research a range of brokers online through review sites like ours and find the right account for your needs.

How Does A Self-Directed Brokerage Account Work?

Usually, investors will simply sign up for the account, deposit their funds, and start picking assets through the brokerage account’s interface. Making purchases of some asset types such as bonds or cryptocurrencies may be more complicated. Fortunately, TD Ameritrade and some other self-directed brokerage accounts make bond purchases simple by using a ‘wizard’ with low fees.

How Do I Choose Assets For My Self-Directed Investing Account?

Since this is a self-directed investment account, the choice of assets is up to you, the investor. It isn’t easy to choose, since there is generally a lot on offer, but index tracker ETFs are straightforward and are generally considered to be low-risk.

Can I Transfer An Existing Account To A Self-Directed Investing Account?

This depends on the type of account you wish to transfer and the type of self-directed investment account you want to make the transfer to. It may not be possible to transfer a 401(k) or 403(b) depending on the plan your employer is tied into.