How Risky Should Someone Be with Their Investments?

Grade: 9 Lesson # 11

How risky should someone be with their investments? How do you balance risk with return?

SS.912.FL.5.10 Explain that people vary in their willingness to take risks because the willingness to take risks depends on factors such as personality, income, and family situation.

Correlated Literacy Standards: LAFS.910.W.1.1 Write arguments to support claims in an analysis of substantive topics or texts, using valid reasoning and relevant and sufficient evidence.

1 SS.912.FL.5.10 Explain that people vary in their willingness to take risks because the willingness to take risks depends on factors such as personality, income, and family situation.

Safe or Risky Investments? Lesson Number: 11

Correlated Florida Standards (See Full Text on Cover Page)  LAFS.910.W.1.1

Essential Questions  How risky should someone be with their investments?  How do you balance risk with return?

Learning Goals/Objectives  Understand the concept of risk  Explain how taking risks can lead to negative and positive outcomes  Calculate the return on an investment

Overview  In this lesson, students will explore how risk and return are related. They will discover differences between safe investments and risky investments through a simulation activity in which they calculate returns on investments.

Materials  Handout 1 Safe vs. Risky Investments (Included in Lesson)  Risk/reward video https://www.youtube.com/watch?v=mv5zucjq60k  Calculators (optional)

Time  50 Minutes

Activity Sequence

INTRODUCTION/HOOK  (5 Minutes) Ask students to write down a list of behaviors they think are risky. (Possible answers include crossing a highway, drinking and driving, using drugs, skipping school, etc.). Then ask them to explain why the particular behavior is risky. Then have a discussion about why people engage in behavior even though they know it is risky. (Possible answers include it feels good, the reward is greater than the risk, I don’t like to follow rules, etc.)

ACTIVITY

1. (25 Minutes) Have students view the Risk/reward video: https://www.youtube.com/watch? v=mv5zucjq60k . Then distribute Handout 1: Safe vs. Risky Investments. Students should read through the handout to gain an understanding of safe and risky investments. Place students into groups of 4. Have students discuss with their groups their thoughts on safe and risky investments. Then discuss as a class. a. Tell students that before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough. b. Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk. c. So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.

2. (10 minutes) Handout 1 Safe vs. Risky Investments a. Have students complete the exercise on the worksheet to calculate the different returns for the different investments. Students then should respond in writing with their opinions on which to invest in, the safe or risky investments. (Answers are on Handout 1 Safe vs. Risky Investments attached).

3. (5 Minutes) End with a class discussion on risky investments. Topics could include: a. The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments. While it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. b. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks. Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000 then the market crashed again in 2007. No investment return is ever guaranteed-- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.

CLOSURE  Discuss essential questions and answer and final questions. (5 Minutes)

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING  You may decide to have students play a stock market simulation game where they can invest in their own virtual portfolio of stocks. http://studentstocktrader.com/is one website where classes can signup to invest. They can track their performance and class discussion can ensue over the next few weeks.

Sources/Bibliographic Information that contributed to this lesson:  Moneyinstructor.com  https://www.khanacademy.org/economics-finance-domain/core-finance/investment-vehicles- tutorial/investment-consumption/v/risk-and-reward-introduction?v=mv5zucjq60k

Name Date ______3 Safe vs. Risky Investments

Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough. Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk. So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards. EXERCISE: You have been given the option to invest in either a safe investment, or one that has more risk. The safe investment will give you a return of 2%. The risky investment's return will vary. Finish filling in the following table, and answer the questions that follow: SAFE INVESTMENT: Here is the return for the safe investment. It will always give the same return. Money to Return Gain(Loss) Total Invest $1,020. $1,000.00 2% $20.00 00

RISKY INVESTMENT: The risky investment's return will vary, and may be one of the following. Finish filling in the following table. Round each calculation to the nearest penny.

Money to Gain/Los Return Total Invest s 1. $1,000.00 18% $180.00 $______2. $1,000.00 1% $10.00 $______3. $1,000.00 -11% ($110.00) $______4. $1,000.00 1% $10.00 $______5. $1,000.00 -16% ($160.00) $______6. $1,000.00 -12% ($120.00) $______

Should you choose the safe investment or the risky investment? Why?

ANSWERS

Interest Savings in one Beginning Savings Interest Rate year 1. $1,000.00 18% $180.00 $1,180.00 2. $1,000.00 1% $10.00 $1,010.00 ($110.00 3. $1,000.00 -11% $890.00 ) 4. $1,000.00 1% $10.00 $1,010.00 ($160.00 5. $1,000.00 -16% $840.00 ) ($120.00 6. $1,000.00 -12% $880.00 ) Copyright 2004 Money Instructor. www.MoneyInstructor.com