Investing

Activity

Students evaluate several types of investments to determine how they meet the criteria of growth, safety, and liquidity.

Evaluate the investment choices on the activity page for the four situations.

1. Which investment is best for someone who is young and wants to save for retirement?  Why?

2. Which investment is best for someone who is very close to retirement age?  Why?

3. Which investment is best for a young couple with small young children and who would like to purchase a home in 4-5 years?  Why?

4. Which investment choice is best for a single person who is 35 years old, owns a small home and does not plan to marry and have children?  Why?

Procedures     

1. Discuss the reasons for a long-term investment plan, such as education expenses, home ownership or retirement.  Establish the idea of “long-term” financial planning.

2. Review the various types of investments, stocks, bonds, etc., the advantages and disadvantages of each, and suggest how each type of investment might be appropriate for different people and in different situations.   

3. Introduce the concept of “risk.”  Discuss the factors that will affect people’s personal feelings about the potential for risk of loss of their investment funds.   Compare the risk of different investments, such as buying individual stocks vs. mutual funds.

Module 1: The Fundamentals of Investment

 The entire game of football is based on a few basic skills: blocking, tackling, passing and running. To be a successful football player, one has to have a solid understanding of the fundamentals. All other aspects of the game are based on these essential skills.

Financial success depends on fundamentals, too. The components of net worth: revenues, expenses, assets and liabilities – a solid knowledge of these skills will prepare students to perform their best and to succeed in the world of finances. And unlike football, everyone plays in the game of finances.

Revenues and expenses are two of the most important concepts for students to understand. In this lesson, students will learn the answer to the question, “Where is my money going?” Without knowing where it’s going, students can’t cut expenses, create a budget or save.

This lesson also teaches students about net worth, assets and liabilities, concepts that are the basis for many future lessons. They’re the first step in understanding debt and investing.

Implementation of Lesson:

1. Explain to the students that in a few minutes they will receive a “Risk Speedometer”.   The purpose is to evaluate all the different kinds of investment options that exist.  Some investments carry more risk than others.

Ask the question: What is risk?  What is “risky behavior” when you drive a car?

Risk is the possibility of suffering harm or loss; danger.  Risky Driving may include too fast or drinking and driving, or using a cell phone / texting while driving; driving while tired or medicated.

Discuss with students: So, you are about to see a chart that shows some things as investments with greater risk than others.  You could make more money quickly or you could loss your money quickly.

2.  Distribute a Risk Speedometer to every student. 

3.  Begin classroom discussion with:

Who sees a term that they have never seen before? (Many students will raise their hands as they have been given a sheet with new terms.)

Why is a Certificate of Deposit shown as having little risk? (Students may answer if they know that CDs are usually insured by FDIC and have fixed terms with guaranteed returns.)

4.  Allow to research items and terms that they do not understand.

5. Finish with a discussion of how investing strategies will vary as people’s life changes.  Young single people have the benefit of time so they can afford to take greater risks than people approaching retirement or married with children.  All investments carry some risk.  Discuss diversification and ‘not having all your investing eggs in one basket’.

“Hook” – What kind of life do you want to live? Today we are going to visualize what a day in your life at the age of 35.

a. Story Telling – 3/5 minutes

• Tell a personal story about yourself or a friend that is making good money, but is not happy with the life they are living. The purpose is for the students to prioritize their own happiness when establishing long-term goals for themselves.

b. Visualization – 15 minutes

• The instructor guides students through a day in their own life at the age of 35. The instructor prompts each thought from waking up to falling asleep with every detail, beginning with the alarm clock ringing, and ends falling asleep on a Friday night just before a vacation. Students are to visualize how they want their life to look during each prompt in the activity. Where are they working? What are they doing? What does their neighborhood look like? Etc.

c. Journal Entry – 20 minutes

• Students are to write in detail what they envisioned.

d. Direct Instruction– 5 minutes

Distribute ‘goal setting’ worksheet (available for download below). Define each goal below and provide an example for the class. Explain the importance of each goal leading into the next.

• Short-term goals – anything up to 3 months
• Intermediate-term goals – take place between 3 months and 1 year
• Long-term goals – more than a year

e. Homework

• Students are to complete their goal setting worksheets and journal entries. (25 points)

“Hook” – What happened today was uncanny! I looked at
everyone’s stocks and almost every group’s greatest investment plummeted! – 5
minutes

a. Direct Instruction (Advantages of mutual funds) – 15
minutes

Define Mutual Funds:

• (1) Diversification – relate this to my hook
• (2) Professionals managing the fund for you – relate it to
  the time and energy they spend on the stock market game
• (3) Liquid investment – what does that mean? How is that an
  advantage?
• (4) Do not need a lot of money to invest.

b. Scavenger Hunt – 10 minutes

• Explain that you viewing an online version of a ~Prospectus
  – a legal document that offers securities or mutual fund shares for sale. It
  must contain the terms, a summary of the fund’s portfolio and investments, its
  objectives, and financial statements showing past performance.
• Distribute worksheet – (Go to www.mfea.com/FundSelectord/default.asp)
• Follow worksheet instructions

c. Direct Instruction – 20 minutes

• This should be the point in the worksheet that you need to
  guide the students through what the details of the specific fund mean. After
  that, explain what the following means:
• Front-end load – a sales charge is
  sometimes paid when you buy an investment. (2-8%)
• Back-end load – a sales charge is
  sometimes paid when you sell an investment. (2-8%)
• No-load fund – does not charge a
  sales fee because salespeople are not involved. You buy these directly from the
  company.
• All funds have a management fee of
  the total assets of 1% - 2%.

d. Comparing a Roth vs. Saving your money – 10 minutes

• Go to www.moneychimp.com/articles/rothira/rothcalc/htm
  (have this already written on the board)
• Walk them through setting up how much money they would have
  if they saved $4,000 ($11 a day) a year until age 58. (40 years)
• Draw an umbrella as a visual aid for explaining ROTH IRA’s

g. Computer Assisted Learning – 10 minutes

• Based on your research, purchase your favorite mutual fund
  in the Stock Market Game

“Hook” – Distribution of amortization schedule
duplex/mortgage payments. Do not tell them what it is, just review how it works
and ask them if it is a good investment. Discuss how this would be a good
investment if it is a rental property. 10 minutes

a. Direct Instruction – 25 minutes

(Use information from the textbook for more detailed
information)

• Direct Real Estate Investment
• Land is a speculative investment,
  which can be harder to get a loan for, and pays only with capital gain.
• Single family – talk the 1% rule
  and what happens when it is vacant
• Duplex – Talk commercial versus
  residential loan. Discuss tax advantages.
• Condo – Discuss what an HOA fee
  is, and how it hinders the possibility of generating positive cash flows on
  condominiums being used as rental properties.
• Fourplex
• Compare
  and contrast appreciation and depreciation

b. Classroom Discussion – 5 minutes

What is an advantage of a duplex over single family?

• What is a disadvantage of real estate (least liquid of all
  investments, managing evictions)– 5 minutes

c. Homework distribution & review – 5 minutes

• Distribute the article ‘Roth IRA Versus Traditional – Which
  is Better’; http://www.cashmoneylife.com/2008/02/06/traditional-ira-vs-ira/
• Students will be assessed based on the information in the
  article tomorrow

“Hook” – Raise your hand if you would like to be a
millionaire? Today, I am going to teach you how to become one - - and all of
you can do it!

a. Direct Instruction – 10 minutes

• Define Diversification (spreading risk) and explain the
  advantages and disadvantages
• Beyond diversification, asset allocation! (Stocks, bonds,
  and cash (home ownership, rental properties, gold, collectibles)
• Why pay yourself first?

b. Computer Assisted Learning – 15 minutes

• Students are to read the article ‘Beginners’ Guide to Asset
  Allocation, Diversification, and Rebalancing at www.sec.gov/investor/pubs/assetallocation.htm
• Students are to read the introductory paragraph through the
  paragraph ‘How to get started’

c. Inquiry Questioning – 5 minutes

• What is a time horizon? (Expected number of months, years,
  or decades you will be investing to achieve a particular financial goal.
• What is risk tolerance? (What you can stomach!)
• What is a stock? (Share of ownership in a company)
• What is a bond? 
  (A purchase of debt)

d. Computer-Assisted Learning – 15 minutes

• Go to www.dinkytown.net/java/RetirementPlan.html
  and have the students complete the retirement plan calculator based on the
  following numbers (age – 22; Income – List incomes based on education, students
  are to enter income based on these figures; Rate of Return – 8%; Percent of
  Income to Contribute – 15%; Rate of Inflation – 4%; Retirement Age – 60;
  Current Retirement Savings – 0; Rate of Return During Retirement – 6%; Expected
  Salary Increase – 4%; Percent of Income at Retirement – 90%
• Students are to print the outcome of their ‘Retirement
  Planner Results’ for 25 participation points

Salary based on
education levels per the College Board (Education Pays Update):

• Professional Degree - $95,700;

• Doctoral
  Degree - $79,400;
• Masters Degree - $59,500;
• Associate Degree - $37,600;
• Some
  College/No Degree - $35,700;
• HS Graduate - $30,800;
• Not a HS Graduate - $21,600