Personal Finance Lesson: Investing Expectations
Lesson Background
If you have ever taken a high school economics class, you are probably familiar with the stock market game. You know, get $100,000 fake dollars and try to make as much money in the stock market as you can over a six-week time period.
While stock market games are fine, they do have some weaknesses.
Sample Slide from Investment Expecations PowerPoint
First of all, they teach students to have a short term investment horizon. While I haven’t fully subscribed to a “buy & hold” philosophy, I do think novice investors should have a longer outlook than one or two months.
The second problem I have with these games, is they can cause students to have skewed expectations of how the stock market works. Depending on what the student invested in, they may leave the game with the impression that the stock market is an impossible crapshoot or a guaranteed way to make easy money. Neither of these expectations is grounded in reality.
As a starting point for my unit on investing, I like to emphasize the importance of having the right expectations when making an investment. I use the PowerPoint presentation attached below to lead a classroom discussion about expectations and afterwards I have the students log onto finance.yahoo.com where they practice looking up stock quotes for companies that interest them.
During the classroom discussion, students are urged to expect the following when investing in stocks:
- Risk/Return Tradeoff
- To Own a Piece of a Company
- Growth
- To wait for said growth
- Volatiliy
- To, possibliy, lose money
- Conflicting advice
- Do homework on (and have fun with) their investments
The PowerPoint also touches on the concepts of diversification and stock betas. Each of these will be built upon in later lessons.
Lesson Resources
PowerPoint Discussion: Investing Expectations
Website: finance.yahoo.com
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