The best way to invest cash depends on your goal for the money - do you have 5-7 years to put the cash into a mutual fund, 3-5 years to invest it in stocks, 1-3 years to put them in bonds, or only one year in which your best bet is a Certificate of Deposit?

The answer to that question, plus your appetite for risk will help define the best way to invest cash for you. The timeframes mentioned above are what a reasonably experienced investor needs to ensure that he or she exits the trade at a profit. This is the most important lesson that any wealth-building practitioner can and must master first - enter only those trades where the odds of exiting at a profit are very high. This is much harder than you might imagine - especially since the returns being offered for high-risk investments will be mouth-watering.

As an example, can you resist the potential of doubling your $10,000 in 3 months, with the risk that you may lose $5000 in that time with a 30% probability? Compare that with the chance of adding 5% to your $10,000 with 0% downside risk. Should you enter such a trade? The answer will depend on how well you know the investment, and what are the chances that you will avoid the downside. And more often than not, investors who are beginners will take the chance and almost surely lose money on the trade. Consider it your market learning fees.

Returning to the general flow of thinking for seeking the best way to invest cash, use these guidelines:

1. What is the timeframe during which you absolutely do not need the money? Obviously, shorter the timeframe, the more conservative the investment.
2. What is the relative importance of this cash in your overall portfolio? In other words, can you handle a complete loss of this cash? Or do you need to make sure that the principal must be absolutely safe?
3. What is the level of return you are seeking? All things being equal, higher returns will require more risk.

We would follow a process that looks something like this:

1. For absolutely safe money, like emergency funds, seek out CDs, I-Bonds, money-market funds and the like.
2. For money that needs to grow a little, and you have a time frame of 1-3 years, seek out investment grade corporate bond funds, real-return funds and the like. Make sure the bond funds or municipal funds deal with a range of maturities.
3. If you subscribe to some good investment newsletters, you can pick individual stocks and stick with them for a 3-5 year period. This is the most profitable moneymaker for you.
4. For longer durations than 5 years, you could choose a good value oriented mutual fund, such as Dodge & Cox or Legg Mason Value Trust.

Of course you could skip step (d) entirely and stick entirely with ( c ) for periods longer than 5 years as well.

Master these simple steps as your first lessons towards wealth building and finding the best way to invest cash.