How To Invest Money?
How To Invest Money?

Before understanding how to invest money, it is important to understand the most important reasons why people invest. For some, it could be getting a very high return while for others, it could be to establish a fixed income stream to depend on after retirement. Based on several different factors, these purposes are defined in a document known as the Investment Policy Statement (IPS), and only after that, high performing investments are made. Let’s understand the process of investing step by step.

What Is Investing?

Investing is the process of foregoing current consumption for better future consumption. You pull out some part of your income and put it in various financial or non-financial assets such as Stocks, Bonds, Alternate Investments, Crypto-currencies, and so on, so that either you benefit from high returns or secure your future lifestyle. 

Whatever may be your motivation for investing, you want to earn a certain return on the money you set aside. Investing is the art and science of achieving this desired return.

How To Start Investing?

Many people will tell you to take the plunge when it comes to investing, however, that is not to be taken literally. You just can’t start investing randomly. The rational way of starting investing is to formulate a plan, chalk down your goals, investment horizon, and then find out the right instrument to invest. Below is a basic layout of this process:

Investing is a continuous process having several steps, establishing IPS being the topmost priority. It gives an overview of the investor and the purpose of the investment. A young investor might have a higher risk-taking ability as she has a long working life to recover from losses, however, the case changes for older investors, dependent on pensions. Some investors might need liquidity in 5 years to buy a house while some might be saving for their children’s college education. All these objectives and constraints are defined in the IPS.

Once the IPS is defined, the investor knows his priorities, based on them she determines the avenues of investment to achieve the desired results. She even determines the proportions in which she can diversify her total investment among these avenues to achieve the desired results.

Once the avenues are identified and proportion determined, actual security selection begins for each asset class. This involves researching and calculating estimated returns. Once the investor is reasonably sure of the performance, she finally approaches a broker to invest her money.

As we know the market keeps moving, you can’t simply put your money in one asset and forget about it. You may do that if you want a fixed stream of income, but even so, you might want a better rate which is now available in the market. 

Monitoring and reviewing of the investment is therefore an important aspect of investing. If the performance and costs of investment have changed drastically and will not achieve the desired returns, then it’s time to move on, to put it colloquially. Rebalancing is the act of changing invested securities or even the whole asset classes. This may also be required due to a change in investor sentiment such as an unforeseen business loss.

Having understood the process of investing, it is clear that the starting point should be an IPS. It needn’t be a legal document, it can be a nascent plan, however, it should take into consideration the investor’s objectives and constraints. Even if you hire an investment manager, any good manager or the best investing books would tell you to first develop a plan similar to an IPS.

Where To Invest Money?

There are so many types of investment to choose from that it can get daunting. It is a natural question that any investor would ask. Let’s understand what some of these avenues are and what are the pros and cons of investing in them:

The above chart mentions only a few broad categories of types of investment vehicles but is sufficient to understand which category of investment is best for you. Let’s look at the pros and cons of all such investment one by one:

  • Stocks: High-risk, high return investment as there is no upper limit to earnings but if the stock doesn’t perform well, you will lose all of your investment. So they more suitable for younger investment or those who have enough financial backing to sustain a loss. It is for those who want to quickly grow their money.
  • Fixed Income Securities: For those who want a passive stream of guaranteed income, FIS is a good option. More suitable for retirees or those having low risk-taking ability or willingness 
  • Alternative Investment: Alts are all those investments that don’t fall in the category of Stocks and bonds or financial instruments. These require a high investment and have a very high return but the chances of success are also low and the time taken to generate the return is long. So only those who can block their capital for that long a period invest in these. These include avenues such as Real Estate, Private Equity, Venture capital, Commodities, etc. 
    • Private Equity: Equity that you invest in via stock exchange is publicly traded, however, private equity is of companies that don’t trade on the stock exchange. You invest with the purpose of greater involvement in the company unlike in common equity. You expect higher returns but risks are higher too. Angel investing comes under this form only where individual investors invest in small companies at the early or expansion stage. 
      • Venture Capital Investment: This is a type of PE investment in a product that is commercially selling and wants to expand or an idea exists but market research and product development require funds. Investment is made by VC firms unlike Angel investing. 
    • Commodities: This is investing in commodities such as oil or food grains or even precious metals such as Gold. However, gold investment is considered separate from other commodity investments because many retail investors also invest in it while otherwise, only corporate invest in commodities to hedge against rising raw material costs and other such reasons.
  • Newer Investments: These includeCryptocurrencies, OTC agreements, and so on. These markets are not that developed and come under the scanner of the regulators very frequently so they involve high risk but due to low competition, the return is higher too.
    • OTC agreements: We come across these every day. These are over the counter agreements. Maybe your friend has an idea and you loan him some money without involving any financial institution and when he is successful he gives you a handsome return. These agreements have no standardized regulations and are mutually agreed upon by the parties involved.

Don’t get boggled by the investment choices. Everything will take you back to your IPS. You only need to narrow down on suitable asset classes. Once that is done, you can start by investing in pooled funds and later do more sophisticated investing as you become a seasoned investor. Even the best investing books will tell you to take one step at a time so don’t make any rushed decisions. 

There are other types of investment also such as ADRs, GDRs, Emerging market securities, Forex which give you international exposure. But these investments are suitable for those who have the risk-taking capacity. These can get complicated, so it is best to take professional advice.

How To Invest In Stocks?

The principle that rules investing is to buy low and sell high. When markets are bearish, then you buy because the stock prices are low, in expectation of high returns when the markets turn bullish.  There are several methods of investing in stocks as described below:

  • Individual Stocks: You pick individual stocks such as that of Google or Apple based on your stock research. For this, you need to conduct a fundamental and technical analysis of the stocks you wish to invest in. You can check out for past information and formulate your expectation.
  • Stock Indices: An index is a group of securities based on certain similarities such as the S&P 500. By investing your money in an index, you receive the proportionate return that the index earns. It is relatively safer because you don’t have to select the stocks.
  • Mutual Funds: These are like indices, however, the group of securities vary from one MF provider to another and may not be the same as an index. It shows the skills of the portfolio manager. So it is riskier but then it might fetch you a higher return too.
  • Derivative instruments: This is a method of investing by not actually investing. You invest in securities such as Forwards, Futures, Options, and so on. They give you the exposure to the stock or the index underlying but you don’t have to spend the money in buying the underlying. You spend less on buying the derivative and get a predetermined proportionate return based on the performance of the underlying.

You need to have an online trading account or contact your bank to provide you the same. You may even contact a broker such as to get you an account. These intermediaries charge you a commission on trading.

How To Invest In Debt Or FIS?

If you have a low-risk appetite or need a regular income stream then FIS is your investing option. There are various ways of investing as shown below:

  • US Treasury Securities: The safest security on the planet. It will default only when the US government collapses. Out of all the government securities of the world, the US treasury is the safest. They give guaranteed returns but the rate is very low. 
  • Corporate Debt: Bonds or debentures issued by corporations also give fixed interest but give a higher return than the treasury because the risk of their failure is higher than that of the Treasury. Debt has a prior claim over the company’s assets so these are safer than stock. Stockholders only get paid after all the liabilities are paid off but whatever left is all theirs.
  • Debt funds, MF’s or ETFs: Similar to equity pooled funds, debt funds, and indices also exist. They give exposure to various debt securities and are good for diversification.
  • ABS, MBS, CDO, CLO & the likes: Even though the 2008 crisis has put a stigma on these, these are still an investment avenue. Home loans, Credit card debts, and all such cash flow streams are clubbed and securities are issued against them. When the borrower of the loan pays, the purchaser of the security gets a return. The security issuer issues the security to convert the loans into immediate cash. The security buyer invests in the expectation of fixed but higher returns.These are complex securities and only suitable for seasoned and sophisticated investors.
  • Investments in Pension Funds such as IRA or Roth IRA also fall under FIS investment. These are retirement savings schemes that secure your post-retirement lifestyle expenses.

Several corporations will help you in FIS investment suck as BlackRock or Fidelity investment. 

How To Invest In Real Estate?

Real Estate is one of the most common types of Alt investment. However, it doesn’t always mean that you have to go and buy land and building. That is only one of how you can invest in Real Estate. There are other routes too such as REITs.

If you wish to invest in actual property, then you may need to contact a property dealer. However, the direct investment required greater involvement in property management and upkeep. So if you have enough time, money, and inclination then you can invest in properties, otherwise, gain exposure through other routes.

REITs are pooled investments similar to MFs where you invest in the shares of the REIT and the REIT invests the pooled money in real estate on behalf of all of its investors. It is a way of getting exposure to high-value investments even when you don’t have that kind of investing capability. You don’t even have to take a loan or a mortgage. 

Some REITs have publicly traded stocks so you can invest in them through the stock exchange. These are highly liquid investments. So those who want to gain exposure but might not want to block money for long can invest in REITs. Physical investment is not liquid at all.

Further REITs invest in multiple kinds of properties residential and commercial so investor gets all kinds of exposures and diversification.

How To Invest In Gold

Gold moves in the opposite direction of a stock. It is a safe haven, when the economy does well gold prices fall when it faces a downswing, gold prices rise. So the best time to buy gold is when it is priced low. However, market forces of demand and supply also impact the price.

Similar to Real Estate, either you can buy gold itself in the form of coins or jewelry or you may invest in Gold ETFs or derivatives. These financial instruments move along with the price of gold so you gain the exposure without investing a heavy sum but you also get a proportionate return.

How To Invest In Cryptocurrency

Cryptocurrencies: One of the most talked-about investments these days. Bitcoins, Ripple, Ethereum, and many more cryptocurrency options exist these days. These require mining skills as in the case of Bitcoins where you have to solve complex mathematical equations to mine a new coin. Otherwise, you can enter the secondary trade market.

Due to the low supply and high demand, the price rise is exponential. However, many regulators across the world are considering such investing illegal so this is a nascent stage of this market. Further, the price of these currencies relies on the value the investors assign them. The bubble might burst at any time as it happened in Tulip Mania in the 1600s. So there is a high degree of speculation involved.

How To Invest In Blockchain: Blockchain is the underlying technology to all the cryptocurrency but it is not limited to just that. It is a centralized digital ledger where all the transactions are recorded. This is being used in many finance companies and other sectors also. 

As the demand is rising, so are the profits, to benefit from this wave you may invest in it as follows:

  • Amass Bitcoins: As Bitcoin run on a blockchain, by investing in bitcoin you gain exposure to blockchain
  • Penny stocks: Bitcoin is not the only currency, there are newer players and lesser traded ones too, these are called penny stocks, just like their counterparts in the stock market.
  • Direct Investment: If you have technical knowhow then you can enter into the blockchain development industry. 
  • Invest in stocks of developers: You may buy the stock of existing developers such as IBM 

How To Invest In Bitcoin: Having understood the basics, the following are the prerequisites of Bitcoin investment:

  • Digital wallet 
  • Identification documents
  • Secure and stable internet connection
  • Currency exchange account

The process of Bitcoin Investment is as follows:

  • Pick a Digital wallet: You can choose from software wallets such as an app called Coinbase or you can use a hardware wallet such as a flash drive offered by leading providers. These hold a private key that helps you trade and makes the trade more secure. 
  • Link a payment method, such as a debit card credit card, or a bank account
  • Connect to a Bitcoin exchange – An online trading platform to buy or sell the bitcoins
  • Start Bitcoin Investment: Buy and sell
  • Convert money to USD or other currency: Convert profitsto your currency after paying all fees and expenses.  

How To Invest In Ripple: Ripple is another cryptocurrency but it is not exactly the same as Bitcoin. It has some differences and it has become recently more popular.  On important factor is that it only allows crypto-crypto transactions and cant be purchased through other currencies. The process of investment is as follows

  • Create a Ripple Account on a recommended exchange: Bitsane is one of the most popular ones but you can still find out if there are any recent developments 
  • Buy Bitcoin or Etherium on Coinbase: As explained in the previous section
  • Transfer Bitcoin to Ripple account: The Ripple account and exchange will tell you the step by step procedure
  • Buy Ripple: Once you have Bitcoin or Etherium in your Ripple account you can buy Ripple
  • Convert Ripple to Bitcoin or Etherium: When you want to book profits, you follow the reverse chronology.

Seems complicated? Well since 2020, you can buy Ripple from the Coinbase account directly also.

How To Invest 100k

One of the most important aspects of investing is diversification. As the saying goes, ‘Don’t put all your eggs in one basket’, you shouldn’t put all your money in one asset class also. You have to distribute it well.

Stocks perform well when the economy is booming. Bonds perform well when the economy is slow but the recession has not come yet. Commodities and Gold perform well in inflation. To maintain a steady portfolio return you need to keep it diversified so that when one asset class underperforms, the other asset makes up for the lost return.

Diversification is successful when different asset classes in your portfolio have low correlation among them i.e. they perform well under different economic scenarios. Below is a simplistic investment calculator for portfolio return and standard deviation or risk. 

Keeping this in mind, if you have 100K to invest, first develop an IPS. Once your goals are defined and constraints found out, you will know what proportion should go in FIS and what in Stock. If you have some left and can bear the risk then think of other investments.  

Keep some safe for an expected future outlay such as buying a house. This should be invested in FIS. The money you want to grow over a long period should be kept in Stocks. As you go on to age, this proportion changes. More money gets invested in FIS and less in stocks.

Return On Investment Calculator

Each kind of asset in the portfolio has a different return calculation method. Stocks and FIS have simpler calculations, Gold and commodities work on capital appreciation principle, MFs have NAV calculations. However, the overall portfolio returns matter the most. For this article, the focus is on portfolio return.

Assume you have a portfolio of three asset classes with the following features:


Further, you are given the below correlation matrix:

Correlation MatrixStockBondGold


Probability weighted return and standard deviation for each asset are calculated as follows:

StatesProbabilityStockProbability Weighted ReturnP(X – Expected return of Stock) 2
Expected Return = sum of Probability Weighted Return6-1 = 5.000% 
Variance= sum of P(X – Expected return of Stock)^20.245+0.245 = 0.490%
Standard deviation = Square root of varianceequation.pdf = 7.000%

Similarly, the return and standard deviation for bond and gold are calculated. All of these figures are summarised in the below table:

AssetExpected returnStandard deviation

From this information, the portfolio return and standard deviation are calculated as follows:


Here the symbols equation_5.pdf and equation_6.pdfequation_7.pdf


As the correlation between gold and stocks and bonds is perfectly negative the portfolio standard deviation is so low, otherwise, if you recalculated the return and standard deviation without gold, then the standard deviation will be high because stock and bonds in this case are highly correlated.

So this was a simplistic Return on investment calculator. These calculations can get tougher when you have more assets in your portfolio. But for that, you can always seek expert professional help.