Where to invest your capital: a comprehensive guide to financial assets to grow it

Introduction: The Path to Capital Multiplication

The question of what I can invest my money in to multiply it is one of the most common in the world of personal finance. Today, anyone interested has access to multiple investment vehicles, but the abundance of options also creates uncertainty. This article will help you understand the fundamental pillars on which to build an effective strategy.

The Two Pillars of Every Investment: Return/Risk and Time

Understanding the Return-Risk Relationship

It is a myth to think that there is a formula to obtain profits without taking on risk. The financial reality is more complex: assets with higher potential returns generally exhibit higher volatility. But here’s the interesting part: not all volatile assets generate the same return per unit of risk assumed.

To evaluate this correctly, there is a tool known as the Sharpe Ratio. This metric answers a key question: which asset provides the most return for each unit of risk I take?

The basic formula is:

Sharpe Ratio = (Asset Return) / (Asset Volatility)

Let’s look at a practical example. Suppose two investment options:

• Asset A: annual return of 12% with 9% volatility → Sharpe = 1.33
• Asset B: annual return of 18% with 25% volatility → Sharpe = 0.72

Although B promises higher absolute returns, A generates 1.33% gain per point of volatility, while B only generates 0.72%. This means A is more efficient: you get a better ratio between gain and risk endured.

Important note: The Sharpe Ratio should only be compared between assets of the same category, as low-risk assets (like short-term bonds) can show inflated ratios without being truly superior.

The Time Factor: Your Invisible Ally

Most people who fail to multiply their money make the same mistake: expecting immediate results. Time is your best ally if used correctly. Two principles are fundamental:

First, start as early as possible. Each year you wait is one less year of compound growth. The difference between starting at 25 versus 35 years old is exponential.

Second, reinvest your gains. This is where the famous compound interest comes into play. If you invest 100 euros at 10% annually and withdraw the 10 euros profit, in the second year you earn another 10 euros. But if you reinvest that 10 euros along with the principal, in the second year you earn 11 euros. Over time, this effect is dramatically amplified.

Before Investing: Protect Yourself Against the Most Common Risks

Knowing the assets is not enough; you need to know how to avoid mistakes that ruin most investors:

1. Determine your true risk tolerance. Don’t ask how much you want to earn, but how much you can lose without affecting your financial stability. Always work with amounts you understand how to manage.

2. Discipline over intuition. Great investors don’t have a special gift; they have a method they consistently respect. Consistency triumphs over speculation.

3. Understand volatility as part of the game. Higher potential returns mean greater short-term fluctuations. This is not a threat if you have a long-term horizon.

4. Use protective tools. Stop-loss orders to limit losses and take-profit to secure gains are essential in any operation.

Where Can I Invest My Money: The Main Assets

Stocks: Traditional Investment

Stocks represent parts of a company’s share capital. As a shareholder, you get two sources of return: the appreciation of the stock and dividend payments.

Advantages:

• They are visible and widely known assets (Apple, Amazon, Tesla)
• Generate dual profitability: appreciation plus dividends
• Historically, they have produced the highest accumulated returns
• Allow highly diversified portfolios by geography, sector, and size

Disadvantages:

• Can be subject to market manipulation
• Corporate financial information is not always transparent
• Require fundamental analysis to select quality stocks

Commodities: Investment in Tangible Assets

Commodities are the basic elements of the production chain: oil, precious metals, agricultural grains. Gold, for example, has historically been a hedge against inflation.

Advantages:

• High trading volume and constant liquidity
• Can be traded 24 hours
• Work well in portfolio de-correlation strategies
• Frequent arbitrage opportunities

Disadvantages:

• Very high volatility influenced by geopolitical and climatic factors
• Not suitable for long-term strategies
• Require constant monitoring of multiple variables

Indices: Simplified Access to Sectors and Geographies

An index is a grouping of assets based on a specific criterion. The Spanish Ibex 35 includes the 35 largest Spanish companies; the German DAX 30 comprises the 30 main German companies.

Advantages:

• Quick and cost-effective access to a full geography or sector
• Automatic and immediate diversification
• Generally low commissions
• Easy to understand

Disadvantages:

• You cannot select which companies to include in your portfolio
• The weighting is fixed and may not match your market view
• Limited flexibility to capture emerging trends

Cryptocurrencies: The Frontier of Modern Investment

With a capitalization exceeding one trillion dollars, cryptocurrencies have established themselves as a genuine financial asset. Bitcoin emerged in 2009 as a decentralized alternative to traditional banking systems.

Advantages:

• Highest returns in the last 50 years
• Thousands of different options allowing ultra-personalized portfolios
• Not subject to central bank decisions
• Proven to be inflation hedges (case of Bitcoin)

Disadvantages:

• The most volatile asset in today’s financial market
• Require deep technical understanding to evaluate genuine projects
• Still face regulatory questions in many jurisdictions

Currencies (Forex): The Oldest and Largest Market

Forex is the exchange of currencies, operating in pairs like EUR/USD or GBP/CHF. It is the largest market in the world.

Advantages:

• Practically unlimited liquidity
• Allows significant leverage
• Operates 24 hours, 365 days a year
• Multiple pairs offer different risk profiles

Disadvantages:

• Requires leverage to achieve significant returns
• Many macroeconomic factors affect prices
• Demands active constant attention

Strategies According to Your Investment Profile

Buy and Hold (Long-term)

This strategy, favored by legendary investors, is based on buying solid assets and holding them for years. It rejects frequent trading because it believes true value emerges in the long run.

Long/Short (Risk Hedging)

Combines long positions in assets you expect to rise with short positions in others you believe will fall. This mitigates volatility and stabilizes returns, though it is more complex to execute.

Example: if you own airline stocks but expect fuel prices to rise, you can offset with a position in oil. What one loses, the other gains.

Day Trading (Intraday Operations)

Focuses on capturing movements within the same session, constantly reinvesting gains. Requires being in front of screens actively monitoring.

CFDs as Investment Multipliers

Contracts for Difference (CFD) are derivatives whose value depends exclusively on the evolution of their underlying asset. Their main feature is allowing short positions and leverage.

If you identify that a certain asset will make a significant move in the short term, CFDs allow you to amplify that movement. Of course, this also amplifies losses, so rigorous risk management is required.

Conclusion: Your Personal Strategy to Multiply Capital

What I can invest my money in to multiply it does not have a single answer. The truth is that multiple avenues exist, each with particular characteristics. What works depends on your risk tolerance, time horizon, and capacity for dedication.

The best approach is to gradually experiment with more volatile assets as you gain experience. Start small, learn from each operation, and increase your exposure as you better understand how different markets behave. The multiplier of your money is not a magic formula but the combination of knowledge, discipline, and patience.