LESSON 3: DEVELOPING A FINANCIAL INVESTMENT PORTFOLIO
Teacher Version

Grade Level
9-12 (may be adapted for grades 7-8)

Introduction

This lesson is an extension for use with Lesson 12, "All Savings Choices Involve Risk: Grandma's Gift", and Lesson 14, "How to Choose a Stock", from Learning from the Market.

This lesson is designed to build on the skills and knowledge acquired in Lesson 12 and 14. After completing these lessons, students are able to consider various options of saving including passbook savings accounts, certificate of deposits, US Government Securities, corporate bonds and stocks, recognizing each option involves an element of risk. The higher the expected return, generally, the higher the risk to the saver. They also know how to match stock selections to stock purchasing strategies and how to obtain information about various stocks.

Content Standards

Standard 2 - students understand that:

Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions.

Standard 4 - students understand that:

People respond predictably to positive and negative incentives.

Standard 7 - students understand that:

Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.

Standard 10 - students understand that:

Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.

Language of Economics

In addition to the terms in the lessons noted above, students need to know:

Investment:

The putting to use of money, capital, or time with the idea of gaining a profitable return.

Portfolio:

A selection of investments used to produce income or return.

Lesson Description

Students are given scenarios for three individuals. They act as financial advisors and develop a financial investment portfolio for each client using internet references as they analyze the various saving options. The internet web sites assist students by providing information regarding their choices for the portfolios. Students may track the portfolio over several weeks to assess their investment strategies. Students may also listen to an interview with Richard Gandon of Standard & Poor's.

Objectives

• Create an investment portfolio.
• Use the internet to locate information.
• Analyze stock and other saving choices.
• Identify appropriate stock selection strategies.

Materials

• Access to computers and the internet.
• Copies of Lesson Twelve, Activity 1, for student reference.
• Copies of Lesson Fourteen, Visual 2 and Activity 1, for student reference.

Procedures

1. After teaching Lessons Twelve and Fourteen from Learning from the Market, tell students they are going to apply what they have learned by serving as financial advisors.
2. Divide students into groups and assign each group one of the clients listed below.
   • Client A has $25,000 to invest over a 10-year period to assist with college tuition when her children begin college. She is interested in finding investments that will generate returns greater than the money market.
   • Client B is 15 years old and has been given a gift of $10,000 to start an investment account in the stock market to build toward the future. One thing to consider is how much risk should be allowed. Also, given the age of the investor, is he (she) more likely to assume more risk than an older person? If yes, why?
   • Client C has $100,000, is 50 years old, and is interested in building a stock portfolio that will assist him when he retires at age 65.
3. Tell students that as financial advisors they are to develop a financial investment portfolio for their client. This portfolio may include stocks, corporate bonds, government securities, certificate of deposits, and money market accounts.
4. Distribute copies of Activity 1 from Lesson 12 and Visual 2 and Activity 2 from Lesson 14 for students to use as references.
5. Point out that publications such as those listed below are valuable for doing research and the Internet is an excellent source for obtaining current information and data. Suggested sites include the following:

   www.cnbc.com
   www.msnbc.com
   www.nasdaq.com
   www.wallstreetcity.com
   library.thinkquest.org/3088 (EduStock)
   www.investor.nasd.com
   www.bigcharts.com
   www.hoovers.com
   www.nyse.com
   www.aol.com
   www.cnnfn.com
   www.investorguide.com
   www.sec.gov/edgarhp.htm
   www.nytimes.com

   Suggested print materials include:

   Business Week Guide to Mutual Funds (seventh edition)
   J. M. Laderman, 1997, McGraw-Hill

   How to Invest: a Guide to buying Stocks, Bonds, and Mutual Funds
   Standard's & Poor's

   Understanding Wall Street (third edition)
   Jeffrey B. Little and Lucien Rhodes, 1991, Liberty Hall

   Your Guide to Understanding Investing
   K. M. Morris, A. M. Siegel, and V. B. Morris, 1997, Lightbulb Press

6. Tell students that each group will report on their clients' portfolios giving a rationale for their investment strategy.
7. Allow time for groups to share their portfolios.
8. Instruct students to track their portfolios over a period of time and compute contributions and accumulations of portfolio investments.
9. Ask groups to report on how their clients' portfolios performed, assessing their investment strategies and explaining what they might do differently for their clients in the future and why.