Unit: Investing Wisely

​

Essential Question: How do different financial products grow your money and what risks are associated with them?

Project: Create a diversified portfolio and experience the risks and returns of the portfolio through an interactive game.

Lesson HS.INV.1:

Interest: The Good, The Bad, The Compound

Do Now: What is interest? Where have you heard about it, how it works or what it does? Is it good or bad?

Interest is either profit earned on money saved OR a fee paid for money borrowed, �usually calculated as a percentage of the principal.

Understanding Interest * Handout

Earned Interest

Owed Interest

Interest that is paid to you as a reward for investing or saving your money.

• Interest on money in your bank account
• Interest you get from lending someone money

Interest that you have to pay as a fee for borrowing money.

• Interest you pay on a car loan
• Interest you pay on a mortgage (loan to buy a house)
• Interest you pay on the outstanding balance of a credit card

Simple vs. Compound Interest * Handout

Interest paid based on both the principal AND the interest you’ve earned so far.

​

As you watch think and then answer:

​

What is compound interest?

Simple vs. Compound Interest

Imagine you invest $10,000 at 5% for 10 years.

​

Which line represents:

• Simple Interest?
• Compound Interest?

​

What does this graph demonstrate about the power of compound interest?

​

​

Rule of 72

Divide the number 72 by the interest rate to find out about how many years it will take for your money to double.

For example, $1,000 at 4% interest will double in 18 years, because:

72 ➗ 4 = 18 years

$10,000, Compounded Annually at 5% Interest

helpfulcalculators.com/compound-interest-calculator

​

Wrap Up: How does investing earlier help you take advantage of compound interest?

Lesson HS.INV.2:

Inflation & Saving vs. Investing

​

Do Now: Have you ever heard someone say, “back in my day ____ used to cost only a _____?”

What was the product? How much did it cost before?

Why does the price of products rise?

What is inflation?

Vocab Preview

• Purchasing Power
• Monetary Phenomenon
• Central Bank
• Assets.

​

To play video on your own computer, visit this page and scroll down to the video under the Key Takeaways section.

​

​

​

On your handout:

• What is inflation in your own words?
• What effect does inflation have on your money (or purchasing power)?

For more, check out usinflationcalculator.com/ and input your year of birth!

Saving vs. Investing

On your handout:

• What is the purpose of saving?
• What is the purpose of investing?
• What is the difference between saving and investing, as compared with inflation?
• What is the difference between saving and investing, in terms of risk and return?

Types of Savings Accounts

On your handout:

• Read each type of savings account (savings option)
• Read the scenarios below, and match each one to the correct savings option.
• There are no wrong answers, as long as you can justify your choice of savings option using what you learned about inflation, compound interest, etc.

Risks, Returns and Their Relationship

Returns

​

​

Class Definition�Return is...

Risks

​

​

Class Definition�Risk is...

In investing, generally, the greater the risk, the greater the potential return.

​

Likewise, the less the risk, the smaller the potential return.

the danger of losing some/all of your money

a reward of additional money - interest, dividends, etc.

Risk vs. Return: Investment Pyramid

RISK

Return

Pocket Cash, Commercial Savings Account, Money Market Account, Online Savings Account, Certificate of Deposit

Government Bonds

Mutual Funds- Index Funds

Corporate Bonds,

Stocks

Collectibles Commodities

Feel free to add these products to the pyramid on your handout!

Risk vs. Return: Investment Pyramid

RISK

Return

Mutual Funds- Index Funds

Stocks

Wrap Up:

What is the difference between saving and investing?

What is the relationship between risk and return?

Investing is putting money into a product with the expectation of a return.

Saving is putting money aside for safekeeping.

When investing, generally the higher the risk,

the higher the POTENTIAL return.

Lesson HS.INV.3:

Manage Your Money, Part 1

​

Do Now:

What are some of the savings and investment products you remember? What do you know about them?

Cash

Savings Account

Certificate of Deposit (CD)

Bonds

Commodities

Risk vs. Return: Investment Pyramid

RISK

Return

Pocket Cash, Commercial Savings Account, Money Market Account, Online Savings Account, Certificate of Deposit

Government Bonds

Mutual Funds- Index Funds

Corporate Bonds,

Stocks

Collectibles Commodities

Build Your Stax.com

STOP

When you get a new opportunity, write down the definition and risk/return potential.

*Click on “play alone” unless your teacher has given you a class code.

STAX GAME: Define As You Play Handout

The game will pause to introduce each new financial product.

​

Use the introductions to define each product in your handout.Make sure your definition includes how high or low the potential risk and return are on that product.

Note: In the handout there is only one box for commodities, but the game will provide two: a crop commodity and gold, so the definitions for both should go in the commodities box.

Reflect on Your STAX

Wrap Up:

How did you feel while playing the game?

If you could play a second time, what would you do differently?

Lesson HS.INV.4:

Diversification

​

Do Now: What do you think the saying ‘Don’t put all your eggs in one basket’ means? What advice is that giving you?

What is diversification?

VOCABULARY COPY ONTO HANDOUT

​

As you watch think… then answer…

​

What is the meaning and purpose of diversification?

​

• Diversification: Reducing the risk of losing your money by having your money in a number of different types of accounts/products.

​

• Asset: Something you own that has value. (A stock, a savings account, shares of a mutual fund)

• Volatility: The chance that something will change wildly (usually for the worse)

​

• Portfolio: Any combination of financial assets such as stocks, bonds, and cash

What is purpose and meaning of diversification?

• Meaning: investing in many different types of accounts and products.

​

• Purpose: to minimize the risk of losing all of you money.

​

• It is the hope that by having many different assets you are at less risk of losing money because if one or a couple of investments do poorly the other unrelated investments are successful enough to balance out your losses.

​

• Can you think of an equivalent to the saying “don’t put your eggs in on basket?”

Diversifying a Portfolio in STAX: Jigsaw

Portfolio: Your collection of assets; any combination of financial assets such as stocks, bonds, and cash

Understanding Index Funds

First to understand what an index fund is, we must understand what an index is. An index is a group of stocks in the market that investors average to see overall how the stock market is doing. There are many different types of indexes because you can group individual stocks in many different ways. The point of an index is to give a statistical measure of the ups and downs within that sample size to better understand how the market is doing in general. Some of the most well-known indexes include the Dow Jones, which tracks and measures the stocks of 30 different companies, and the S&P 500, which tracks and measures the stocks of 500 companies.

An index fund is a type of mutual fund that matches or tracks a specific index. So, for example, an investor may invest money in a mutual fund that buys all the same stocks that make up the S&P 500. Professionals more actively manage other types of mutual funds by studying the market and choosing a variety of investments for their clients and in return clients pay a fee. However, when investing in a mutual fund that tracks an index, the manager is not actively choosing the assets because the assets are already chosen by the index , so clients pay a lower fee for investing in an index fund. Index funds are a popular investment because of these lower fees and because they have consistently outperformed actively managed mutual funds. Index funds minimize risk by spreading the investment across many different stocks. In the short term, index funds can be volatile but are less volatile than individual stocks and in the long-term indexes generally rise in value.

Go to NerdWallet.com and search for this article What Is an Index Fund? to learn more about index funds.

​

Understanding Commodities

A commodity is a basic good that can be bought and sold. Since there are so many commodities in the market, they are categorized into three main groups: agriculture, metals, and energy. Agricultural commodities include goods like coffee, sugar, wheat, cattle, and cotton, metal commodities include gold, silver, and copper, while commodities listed in the energy category include crude oil and gasoline. Commodities are particularly risky investments because unpredictable natural and man-made disasters greatly affect the price of commodities. Some investors see commodities as a good diversification tactic because the price of commodities may rise and fall opposite of stocks. This is because, in general, as the demand for goods rises and the supply falls, the price of commodities goes up, while the stocks for companies that rely on those goods falls.

​

For more information about commodities reference the resources below:

• Commodity by Investopedia
• What Commodities Are and How Its Trading Market Works by thebalance.com
• The Periodic Table of Commodity Returns by Visual Capitalist

Time to Plan Your Portfolio

Reminder: A portfolio is any combination of financial assets such as stocks, bonds, and cash

Wrap Up: How did learning about diversification and the different products inform your portfolio planning?

Lesson HS.INV.5:

Manage Your Money Part 2

​

Do Now:

What is a financial advisor and what do they do?

Financial Advisor Meeting

Read the blurb about financial advisors on your handout and answer the following questions.

​

Do you think it is important to employ a financial advisor?

​

​

When would a financial advisor be helpful?

​

​

What should you look for in a financial advisor?

Prep For Financial Advisor Meeting

Client 1 is a couple that has two kids. Both parents work are in their mid - 30’s and own a house.

​

Client 2 is a teacher who is 25 years old. Her goal is to save up enough to retire in her 60’s and to save enough money to buy a house in about five years. She is not married and does not have any kids.

​

Give them advice using your

• Have they diversified their assets so that they don’t have their money all in one type of account?
• Have they diversified ENOUGH to protect themselves against loss?
• Have they taken enough risk to make a good amount of money?
• How would you advise them to change their plans here?

• Did being a financial advisor give you any ideas around how to change your portfolio?

​

• Do you think it is important to employ a financial or tax advisor?

​

• Under what circumstances would a financial advisor be helpful?

​

• What should you do when looking for a financial advisor?

Financial Advisor Meeting

What can your portfolio do for you - Play Round 2...

Then answer the reflection questions on your handout...

Wrap Up: With diversification in mind, what are the advantages and disadvantage of picking your own stocks as compared to investing in an index fund?

Lesson HS.INV.6:

Investing for Retirement

​

Do Now:

How do retired people afford to live without a paycheck?

Social Security

403B

401K

Pensions

Roth IRA

Investment Accounts:

Sources of Retirement Income

• Government program that pays a percentage of your pre-retirement income based on your lifetime earnings.
• Paid for by current income taxes.
• The amount you receive depends on your lifetime earnings and when you choose to start benefits
• NOT meant to be the only source of income for retirees. (Currently underfunded.)

• Special types of investment accounts: long term investments that workers contribute to while they work. The money invested grows to become a source of income during retirement.
• The type of retirement account and size of your contributions depends on the type of company you work for and how much you make.
• If you take the money out early (before age 65), most retirement accounts charge penalties and fees.

• Pensions are fixed-amount payments (normally monthly) that some employers guarantee their workers when they retire.
• More common through the 1980’s.
• Types of jobs that usually provide pensions: government jobs, teaching, nursing, military, pharmaceuticals.

Retirement Calculator

Predict: Which do you think has the greatest effect on the growth of a retirement fund?

​

• The amount of money you put into your retirement fund at the beginning?
• The amount of time your money has in the account?
• The percentage of your salary that you contribute to your account each year?

Test Your Prediction * Handout

• Go to https://www.nerdwallet.com/investing/retirement-calculator.
• Fill in the following information:

​

​

​

​

​

• Answer the following questions:
• Which had a greater effect on the growth of your money: the starting amount, the earlier start, or the larger contribution each year? Why?
• When can you start contributing to a retirement account?

401 K vs ROTH 401K

What are the differences between a 401 K and a Roth 401 K?

• When you pay taxes.
• How much and when you can withdrawal.

Whichever is available to you, know that:

​

• Start NOW! Start contributing as soon as possible! More time = more money!
• Enroll in your company's “matching” program if available. This is where your employer will contribute the same amount of money to your account as you do, up to a certain percent. (For example, if they match up to 3%, then as long as you contribute more than 3% to your retirement plan, they will match that 3%.)
• The recommended contribution is 10% of your annual income.

Investing Basics: Retirement

What the Heck is an IRA?

*Video linked in slide, EdPuzzle link here.

Investing Basics: Retirement

Answer the following questions as you watch the video.

​

1. What are the two main types of retirement accounts?

​

• What does it mean to have an employer “match” your contributions?

​

• What is the main difference between a Roth IRA and a Traditional IRA?

​

• Which IRA would you invest in if you think your income is higher before you retire?

Wrap Up, Part 1:

Why is it important to save for retirement?

Wrap Up Continued:

What difference does it make when in your life you start saving for your retirement?