LESSON 3: DEVELOPING A FINANCIAL INVESTMENT PORTFOLIO
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Introduction

This lesson is designed to build on the skills learned in Lesson 12, "All Savings Choices Involve Risk: Grandma's Gift", and Lesson 14, "How to Choose a Stock", from Learning from the Market.

In the lessons above, you learned how to consider various options for saving. You also learned to recognize the elements of risk associated with each option. Your options included passbook savings accounts, certificates of deposit, US Government Securities, corporate bonds and stocks. The higher the expected return, generally, the higher the risk to the saver. You also learned how to match stock selections to stock purchasing strategies and how to obtain information about various stocks.

Language of Economics

In addition to the terms in the lessons noted above, you 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 an income or return.

Activity

Review the lessons "All Savings Choices Involve Risk: Grandma's Gift" and "How to Choose a Stock" from Learning from the Market. In these lessons you learned about various savings choices and that each choice involves risks. You also learned how to match stock selections to stock purchasing strategies.

Review the definitions to gain a better understanding of portfolios and investments.

Listen to an interview with Richard Gandon of Standard & Poor's on investment strategies.

Work with your assigned group. Select one of the Clients:

• 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.

Use the print materials and web sites listed below to develop a financial investment portfolio for your client.

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

Be prepared to share your portfolio with your classmates, summarizing your investment strategy and rationale.

Track your client's portfolio for ten weeks. Compute contributions and accumulations for their portfolio.

Assess your client's investments at the end of ten weeks. How well did your client's portfolio perform? Are there any changes you would make in your client's portfolio? What are they? Why would you make these changes?