Is this new type of ISA the one for you?

Do you prefer tailor-made or are you happier buying off the peg? The choice of individual savings accounts (ISAs) is a little bit like that.

You can opt for a self-managed stocks and shares ISA which you fill with investments handpicked from a wide range of investment options on the interactive investor platform. Or you can pick the ii Managed ISA, which is a portfolio made to measure for your financial circumstances.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Your decision might be influenced by your level of investment confidence, how inclined you are to research suitable investments, how much time you can devote to your finances, and your understanding of risk. That said, even many seasoned and well-diversified investors like to have an element of managed assets in their portfolio.

Say hi to the ii Managed ISA

If you’re a first-time investor, the ii Managed ISA’s short application process includes a number of essential pre-investing checks, including how long you should be prepared to invest your money for to ride out stock market ups and downs.

The process is thorough, but blissfully brief and well-explained, with two styles of investment to choose from, either “index” (low-cost funds) or “sustainable”.

We ask how much money you want to invest, bearing in mind the annual ISA allowance is £20,000, and we can help you determine your attitude to risk with your money. Then, you just match with one of 10 portfolios.

Time and confidence

Apparently, each human that lives till they’re 80 has roughly 4,000 weeks on this planet, and many of them won’t want to spend that allowance thinking about investing, either by choice or circumstance. This is where the ii Managed ISA can help.

Our Managed ISA lets you invest without forcing you to select individual investments from the thousands out there. The thinking is done for you by experts, saving you time for other things. It is especially helpful if your investment knowledge is limited, and if you’re not comfortable with investment jargon.

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If you do have spare time, and enjoy investing, you may prefer a self-managed stocks and shares ISA, where you can mix and match funds, shares and investment trusts.

How do you work out the right risk level?

It’s fair to say I had a poor understanding of risk before I worked at ii. My attitude was in part informed by a skewed perception that the stock market was reserved for Gordon Gecko/Wolf of Wall Street type characters, or wealthy people with money to gamble.

This view meant that a Cash ISA was, for years, the only “safe” option for the money I’d squirrelled away. But while working at interactive investor, I’ve learned – to my advantage – not only more about inflation’s pernicious effects and why investing makes sense, but that stock market risk, like so much in life, is nuanced rather than black and white.

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• Lump sum vs regular investing: which is best for my ISA?

Nothing is risk-free, even getting up in the morning, and it’s important to know the level of risk you’re comfortable taking when investing and matching that with a portfolio appropriate for your goals. Helpfully, the ii Managed ISA checks in annually to make sure you are still at the right risk level.

What sort of returns are we talking about?

When opening an ii Managed ISA, you’ll see a projection of how much you might have saved in your ISA after 10 years. You can play around with shorter or longer time periods by entering a different number into the box.

There are three different estimates - none of which are guaranteed - showing a potential figure if the market underperforms, performs as expected, or outperforms. For anyone new to investing, I would stress that “underperformance” does not mean your entire pot of money evaporates!

It’s incredibly rare to lose all your money if you have diversified investments (money invested across many companies and different asset classes), and the ii Managed Portfolios are diversified.

If the stock market crashes - it happens occasionally – investors with a long-term view are told to sit tight and keep investing. Pulling your money out after a crash means you remove any chance for it to recover. A fund in my ISA experienced a 17.3% crash during the Covid-19 pandemic, but I didn’t pull my money out or stop investing. Now, it’s up 70%!

Comparing costs

Our Managed ISA process illustrates the cost of investing with ii over one year. You can see the platform charge and cost of the Managed ISA portfolio, which vary according to the style of investment and risk profile. Portfolio investment costs range from 0.13% to 0.36%.

Managed ISA or self-managed ISAs start on the £4.99 a month Investor Essentials plan; moving to the £11.99 a month Investor plan when your investments grow above £50,000.

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Platform fees are an important – but often overlooked – part of the investment process, but over the long term, fees eat away at your capital. ii’s flat fees mean the charge doesn’t change as your ISA grows. Percentage fees, in contrast, mean the provider takes a bigger chunk of your wealth as your pot grows.

This means that the ii Managed ISA is cheaper than other Managed ISA's in the market if you’re investing more than £15,000.

You need just £250 to open a Managed ISA, or you can open one by investing from £50 a month. With the self-managed stocks and shares ISA, you can invest from £25 a month through our free regular investing service. There is no minimum amount to open this type of ISA.

Case study: a Managed ISA vs my self-managed ISA

I have one multi-asset index fund in my stocks and shares ISA: Vanguard LifeStrategy 80% Equity fund. It’s one of ii’s Quick-start funds, which have been selected for beginners, but such funds are bought by experienced investors as well.

I chose it as a “starter fund” for my first stocks and shares ISA because I wanted a simple, low-cost investment (0.22% ongoing charge) that I could “set and forget” for the long term.

The fund is considered “adventurous” because of its weighting to shares (80%) – it currently has 24,170 holdings – which leaves me well diversified and open to generating potentially higher returns. The other 20% of the fund is allocated to bonds, which are perceived as lower risk.

At the time of writing, I’ve held the fund for five years. But how does the Managed ISA compare?

When I run through the ii Managed ISA process, I opt for the “index” option, which means I’m “aiming for growth without frequent intervention and keeping costs down”.

My risk profile comes out at Level 4 (adventurous), which is like the Vanguard fund. “Adventurous” means that the “primary focus is growing my portfolio” and that I’m “willing to accept a higher risk of loss and short-term volatility”.

So, if I were invested in the Adventurous portfolio in the Managed ISA, I would have a 70.7% allocation to shares, a 21.2% allocation to bonds, and 8.1% in property. So, like the exposure on offer through LifeStrategy 80% Equity, the Managed ISA has a slightly lower weighting to shares and a greater exposure to property.

The factsheet for the Managed ISA Adventurous portfolio shows the exact asset breakdown (there are four different types of bonds, for example), the geographic mix, and the top 10 holdings.

The property exposure in the Managed ISA is something for me to consider. Property is a higher-risk asset class, but it would be an additional portfolio diversifier, which could be a good thing.

The regional mix the Managed ISA offers is also something to mull. According to the latest factsheet on TrustNet, the geographic breakdown of my Vanguard fund shows a near 40% weighting to North America versus 23% via the Managed ISA. So, a bias to the US.

While my knowledge, confidence and understanding of risk means I’m comfortable with the self-managed stocks and share ISA, the Managed ISA does offer attractive diversification across asset classes.