Lesson 10: Investing
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Purpose of lesson: To expose the student to stocks, bonds, and mutual funds.
Materials needed: Internet access
“Remember we learned about earning interest on money kept in a savings account? Remember your savings are insured if your bank is FDIC certified, which means that there is no risk of losing money should the bank go out of business. One drawback of standard savings accounts is that your interest earnings are usually relatively low. Today, we’ll talk about investing money in the stock market, which has various levels of risk and a potential for high earnings.”
Discussion: Stocks and Bonds
Explain that saved money kept in a safe at home decreases in value over time, due to inflation. Money kept in a savings account earns a very small percentage, and money invested in the stock market has the potential to increase at a much faster rate than the rate of inflation.
“You have the option to invest in percentages of companies by purchasing stocks or lending money for a set time period by purchasing bonds. The company or agency you invest in will use your money to grow its business. The cost of purchasing one stock varies widely between companies and is dependent on the company’s worth. A share may cost $1.00 or $1,000.00 to purchase. If stocks are purchased in a particular company and the stocks double in value, the investment doubles in value. You earn the money when you sell the portion of the company. Conversely, if the business does poorly, you lose some or all of the investment. Investing is risky. Usually, the greater the risk, the greater the potential return on invested funds.”
“To decrease the risk, you can diversify your investments. Instead of investing all of your ‘investment money’ into one company, choose a variety of companies. Another alternative is to buy shares in a mutual fund. Purchasing shares in a mutual fund means you own small portions of many, diverse companies. The chance of all the companies doing poorly is slim, as is the chance of all the companies doing remarkably well. The lower the risk, the lower the potential return on invested funds.”
“The longer you are able to keep your money in the stock or bond market, the less risk you take on. The market will fluctuate, with seasons of high and low earnings, but the market has historically gone upward. In other words, if your investments are diverse, you will make money over time. If you plan to retire in two years, high-risk investment is unwise. If you have twenty years until retirement and have an emergency fund, purchasing diverse stocks and bonds is considered very wise.”
Discussion: Conversation Starters
- Why do you think investing in a new business is considered one of the riskiest investments?
- In what companies would you want to invest?
- Would you seek professional investment advice before investing money? A financial advisor or stockbroker can help you analyze risks.
- Would you want a stockbroker to invest your money on your behalf? He or she may charge fees for their services. An alternative is to open an online brokerage account and manage your stocks, bonds, and mutual funds yourself.
- Do you have questions about investing?
Exercise: Choose a Broker or Brokerage Account
The student can explore websites for stockbrokers and brokerage accounts.
Exercise: Market Watch
The student can watch the market in real time. He can choose a stock or group of diverse stocks to mock-purchase and watch the “investment” fluctuate over the course of the year.
“Today we discussed an overview of investing. You learned about purchasing stocks, bonds, and mutual funds, as well the principles of wise investing.”
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