The main purpose of investing is to make your savings work hard for you. Wisely-invested money can make you even wealthier and that can lead to an improvement in the quality of your life.
Given that the money in your bank account is being eaten up by inflation or bank fees, investing becomes even more attractive compared to saving.
But that leads to the difficult question of how & where to invest money. If investing was that easy, everyone would just invest their savings in a mutual fund and get rich. But that’s not how smart investing works.
Research shows that many investors do not make a profit, or their profits are eaten up by fees, especially those who rush into investing without a system and without educating themselves. Don’t be one of them.
That’s why we have created this ultimate guide on how & where to invest money, which will take you step-by-step towards building your own optimal portfolio.
Not only will you receive a framework to help you make a decision on where to invest your money, but you will also get some useful tips on how to do so (where to open accounts, DCA, etc.).
The answer to the question “How and where to invest money” is unfortunately not the same for everyone, as it depends greatly on a number of factors. Let’s take a look at some of them:
Age is a very important factor when it comes to investing. The younger you are, the more aggressive your investment strategy can be, or in other words, you can afford to take more risk.
The main reason is that as a young investor you have your whole life’s earnings ahead of you and more time to recover if the market crashes. As you get older, you want safer investments to ensure that market meltdowns do not mess up your retirement plans or force you to sell your investment at a big loss.
You also need more mental peace and less stress due to short-term volatility.
Here’s a general guideline when it comes to age:
| Age span | Portfolio type |
| 20 – 40 years old | Aggressive portfolio |
| 40 – 60 years old | Balanced portfolio |
| 60 – 70 years old | Conservative portfolio |
Age, of course, is related to material status, number of children, need for major investments such as housing and cars, etc. These are also very important factors to consider when deciding where to invest your money.
Investing is rarely only about you, but also the people you care about.
The second factor to consider is how much time you are willing to spend studying different investments. If you have limited time to invest and little discipline to research, you should be a passive investor who puts as many things on autopilot as possible.
There are many great products for passive investors (index funds, ETFs…) and you can basically automate everything to the point where investing only takes you a few hours a month, if not a few hours a year.
On the other side of the spectrum are active investors, either short-term or long-term. Active investing can be a full-time job.
It’s one of the best vocations you can have, and working in the financial sector can definitely make you rich, but you must not fool yourself thinking that with a few hours per month you can outperform the market and all those investors who work day and night studying trends and searching for an edge.
Most investors fall somewhere in the middle of the spectrum, being semi-active. They don’t want to change their daily job, nevertheless they might find passive investing alone boring, as they miss the challenge to beat the market as well as many learning opportunities.
That’s why many investors decide to allocate their portfolio between products for passive investors, and a few investments they actively choose (with enough analysis). This strategy is called “Indexing and qualified stock picking.”
| Type of investor | Time commitment | Investment strategy |
| Passive investor | A few hours per month | Indexing and automating |
| Long-term semi-active investor | A few hours per week | Indexing and qualified stock picking |
| Long-term active investor | Full-time or part time job | Fundamental analysis |
| Short-term active investor / Trader | Full-time job | Technical analysis |
The third important factor is your risk tolerance, i.e., how well you handle volatility. Investing is not only about technical skills, but even more so about managing your emotions.
Many investors start panicking when their investments drop and begin selling them, when they should be actually buying. The problem here is that how we think we’ll act and how we actually act when we start losing money are two different things.
That’s why it’s important that we build our portfolio slowly and systematically and observe how we react when things don’t go as expected with our investments. Your portfolio must be allocated in such a way that fluctuations don’t cause your emotions to get out of control.
Risk tolerance is also closely connected to your financial goals. The higher the returns you want to achieve, the riskier the investment approach you must take.
Nevertheless, you should never forget that getting rich quickly or losing all of your money are only different sides of the same coin. If you are young and ambitious it’s okay to build a more aggressive portfolio, but not to the point of being reckless.
| Expected annual returns | Range of potential outcomes in a specific year (standard deviation) | Expected portfolio drawdown | |
| Aggressive portfolio | + 10 – 15 % | – 15 % to + 45 % | – 80 % |
| Mature / Balanced portfolio | + 5 – 10 % | – 3 % to + 17 % | – 40 % |
| Conservative portfolio | + 0 – 5 % | – 1 % to + 7 % | – 20 % |
Look at the table above and try to imagine how would you feel if you lost 5 %, 10 % or 50 % of your invested money. And then imagine what feeling would arise if you had 5 %, 10 % or 50 % more money than you invested a year ago.
The last factor to consider is how much money you have set aside side for investing, how much money you’re earning on a monthly basis and, even more importantly, what percentage of your monthly salary you are willing to save and invest.
It’s true that the sooner you start investing, the bigger the advantage you have because of the accumulating interests. Nevertheless, your earning capacity most often grows as you get older.
It is obvious that you should save and invest as much as possible. The more money you save and the higher your income is, the more aggressively you can invest.
If your savings are very limited, your investment options are also, and in such cases it usually makes sense to direct investments toward building financial security and steady asset growth without taking major risks. If you can invest larger sums, you can use the money for more ambitious asset growth and more speculation.
This leads to a very important piece of advice for (potential) investors. Before you actively invest, make sure you are fully realizing your income potential. This includes building your skills and competencies, learning how to negotiate a higher paycheck, and perhaps earning extra money with side jobs. First invest in yourself aggressively.
After you have increased your income potential, you need to learn how to save money, and only then comes the investing part.
Three important money skills:
You may also wonder what the minimum amount that you need to invest is. 5,000 – 10,000 EUR is the minimum for a one-time investment, and about 300 – 1,000 EUR per month for dollar cost averaging.
With neo-brokers (like Equito) you can invest even lower amounts, but if you use traditional brokers or other websites, you should pay attention to the high fees.
Now that you know what factors to consider when deciding where to invest your money, let us take a closer look at the options you have.
When it comes to building your optimal portfolio, you can choose from 7 main asset classes, more than 30 different types of investments, and thousands of financial products for each type.
In the table below, you’ll find the main possibilities you have when investing:
| 1. Cash & Currencies | 2. Equity | 3. Fixed income – Loan | 4. Real Estate |
| Cash Bank deposits (CDs) The money market funds Foreign currencies | Stocks Mutual funds Index Funds ETFs Angel investments VC / PE Funds Equity crowdfunding | Notes Bonds Debt mutual funds Receivables P2P Lending Debt crowdfunding | Residential properties Commercial properties REITs Real Estate funds NPL funds |
| 5. Commodities | 6. Crypto | 7. Collectibles | 8. Other |
| Precious metals Raw materials | Crypto currencies Crypto projects | Art NFTs Other collectables (cars, furniture…) | Hedge funds Derivates – Options and futures Insurance & annuities |
In this blog post, our focus will be on how to build an optimal portfolio out of the choices listed above. If you would like to learn more about each type of investment, please read our article: Different types of investments and how they work.
The next step is to create an investment strategy and optimal portfolio for you as an individual, taking into account all the factors we’ve mentioned (age, income, risk tolerance, time investment) and the best investment products.
Let us take a bottom-up approach to this challenge. From a macro perspective, you should be concerned with the Pyramid of Wealth:
We already mentioned that your earning potential should be maximized. The more money you save and earn the better your options are to build a strong portfolio.
Financial security is about making sure you avoid financial collapse in a case of an emergency or misfortune.
There’s no human being alive that doesn’t face adversity from time to time, be it job loss, a death in the family, health issues, etc. When such a time comes, you don’t want to put yourself or your dear ones under additional pressure, or even worse – go bankrupt.
To build your financial security, you should prepare:
To get through turbulent times in a financially healthy way you should build an emergency fund. The size of the emergency fund should be such that you can comfortably cover 3 – 12 months of your expenses.
You can keep your emergency funds in cash or a cash equivalent with high liquidity.
Based on your life situation (property, family, health …) you should also have an insurance package that helps you recover in a case of a disaster or accident, but please remember that many insurance companies offer investing products, which are very expensive.
Insurance is for insurance policies, not investing. When protecting yourself and your loved ones, you should consider the following types of insurance:
Gold can be part of your portfolio in two ways – as a hedge during a market downturn or as a medium of exchange when all hell breaks loose (e.g., in wartime).
For the latter case you need to have physical gold somewhere that can be easily reached but hard to steal. And when you buy physical gold, make sure you always buy it from reputable mint (Argor, PAMP, Valcambi …).
If you have the right insurance package, an emergency fund for approximately 6 months of your costs, and a few 1.000 of EUR in physical gold (in easy movable 5 – 20g plates), your financial protection should be better than the majority of the population.
Having protected yourself, you’ll also want to protect your wealth, at least to some degree. You want to protect your wealth from yourself (by spending or investing too aggressively), from inflation (loss of purchasing power), and from similar threats.
For the average investor, there are three sound options if your goal is to preserve your wealth, or at least cover inflation:
Real estate is a good option for wealth preservation if you have enough of investment money (a few 100.000s EUR).
You should put effort in to find a real estate at the right price that can be easily rented out to good tenants. You can expect around 3 – 5 % of ROI on real estate investments or higher if using leverage by taking a bank loan.
Gold and silver can also be considered as wealth protection investments, especially in bear markets. In this case you don’t need physical gold (or silver), you can buy an ETF or make a purchase at renowned mints that also take care of storage.
But be careful to choose the one that actually stores physical gold, and as mentioned only from reputable mints. The most common advice is to have around 5 %, to a maximum of 10 % of your portfolio in gold and silver.
Bonds are another popular investment in market downturns and as low risk investments. In the past decade, money was so cheap on the market that bonds didn’t make any real return, but that changes along with the market cycles.
The average historical return of bonds is around 5 %. When investing in bonds, the handiest way to do it is to buy a bond ETF that tracks the performance of a broad, market-weighted bond index. Bond mutual funds are also popular, but the costs are much higher.
The next step is wealth growth, where we can be quite straight forward: During the history of capitalism, the best wealth creators were stocks.
When you buy a stock, you own part of the publicly traded company, and as the company grows its value and your investment also have a great chance to do so. As well as this, you are entitled to a dividend based on the profits generated by the company.
Stocks are already considered a risky investment, meaning they can be quite volatile in the short-term. That means you must have a long-term view (at least 7 to 10 years) when investing in stocks.
A handy formula for the maximum number of stocks you should have in your portfolio is: 100 % – your age.
And you should never go into debt to invest in stocks. Besides the long-term view, diversification is the key when it comes to investing in stocks. The best way to diversify your stock portfolio at the lowest cost is to invest in stock ETFs.
ETFs (Exchange Traded Funds) in general contain a collection of different investments such as bonds, stocks, etc., and usually track a specific index, region, sector, or commodity. For example, an S&P 500 ETF follows the S&P 500 index.
ETFs are listed on the market in the same way as shares, and have lower fees compared to mutual funds. The most recommended strategy for average investors is the so called “core and satellites” approach, which means you choose one general, very well diversified ETF, and then a few with a narrower focus (energy, tech, emerging markets, etc.).
You can also invest in stocks on your own, based on your own research, but make sure you take enough time to study and understand really well what kind of companies you are investing in. You can also go for a few ETFs, and a few carefully selected stocks.
Speculation is at the top of the pyramid. Speculative investments are a double-edged sword; they can speed up your wealth accumulation, but they can also lead to a financial disaster.
When it comes to speculation you should follow the basic principles:
And there are plenty of options when it comes to speculation. The following ones being the most popular among semi-active investors:
When considering these investments, try to find something that you are really interested in.
Let’s now summarize how to build your own pyramid of wealth:
The final step to getting the complete answer to the question of where to invest your money is the formula for allocation among different investment types.
According to research asset-allocation is especially important in bear markets.
Below is an example of a common allocation strategy. Nevertheless, you should build your own allocation based on all the aforementioned factors and according to your own investment strategy.
| Pyramid of wealth | Type of investment | Aggressive | Mature | Conservative |
| Financial security | Emergency fund Insurance | ✓ | ✓ | ✓ |
| Wealth preservation | Gold and silver | 0 % | 5% | 10 % |
| Wealth preservation | Bond ETFs | 0 % | 15 % | 40 % |
| Wealth growth | General ETFs | 40 % | 40 % | 40 % |
| Wealth growth | Niche ETFs | 30 % | 20 % | 10 % |
| Wealth growth | Individual stocks | 10 % | 10 % | 0 % |
| Speculation | Crowdfunding / Venture | 10 % | 5 % | 0 % |
| Speculation | Crypto | 10 % | 5 % | 0 % |
| 100 % | 100 % | 100 % |
Now that we’ve looked at all the possibilities for where to invest your money, let’s focus on how to do so. It might take quite some planning, learning, and setting up of accounts before making an actual investment for the first time.
We recommend the following steps:
To buy specific investments, you will have to open several accounts at different financial institutions. We encourage you to open accounts at popular, verified, and secure institutions that don’t charge big transaction fees. Don’t be scared, since opening accounts shouldn’t be a big hassle.
| Type of investment | Which platform to use? |
| Gold and silver | – Bullion Vault – Gold Core – Gold Republic |
| Bonds Bond ETFs Stock ETFs Stocks | – Interactive Brokers – E-trade – Webull – Fidelity investment |
| Crypto | – Binance – Coinbase – Kraken – Bitstamp |
The last important question is when and how much to invest. The best strategy when it comes to this question is so called “dollar-cost averaging”.
Dollar-cost averaging means that you invest equal sums of money at regular intervals. The main purpose of dollar cost averaging is to neutralize volatility (at least to a certain extent), meaning you don’t make a purchase when the markets are at their peak.
You can use the dollar cost averaging strategy in two ways:
If you have a bigger amount of money that you would like to invest, you can divide it into 4 – 12 parts and invest each part every 2 months or per quarter. For example, if you have 100.000 EUR to invest, you divide it into 4 parts and invest 25.000 EUR every quarter.
Then you can use the same principle when investing part of your monthly salary. After receiving a new paycheck, you can automatically invest x % of your income according to your investment strategy.
And the best way to do it is to automate it, since you don’t want to rely solely on your consistency and discipline.
Good luck with building your own portfolio!
Disclaimer: As you might imagine, this content is not investment advice, just an educational article about how to gather information and read financial statements. It is also not an invitation to buy or sell any financial instrument mentioned in the content.
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