Good Questions To Ask Students About Investing…
I was thinking this might be a good way to kick-off your investing unit. Ask students to agree or disagree with each of these three statements:
- You need a lot of money to invest
- Investing is too risky
- You can beat the market
This article from LifeHacker does a nice job of debunking these three myths:
- You don’t need a lot of money to invest:
Mutual funds are a safe option for your portfolio. A mutual fund is a pool of various investments. Index funds are a type of mutual fund designed to mirror a certain index, like the S&P 500. Exchange-traded funds (ETFs) are similar investments. (The main difference is how they trade; you can read more here). Some of these funds require a minimum of $3,000 or even $10,000 to invest. But there are plenty that require as little as $100 or $200, as we’ve pointed out.
- Investing gets less risky the longer your time horizon:
Let’s say you spend $5 a week on lottery tickets for 20 years. That’s $260 a year or $5,200 after 20 years. Will you hit the lottery? Perhaps, but your odds of winning are extremely low. The U.S. stock market on average returns about 8% a year. During the past three years it has done much better but there have been a couple of years where it’s done much worse, such as in 2008. But the longer the time horizon, the higher the probability that you will recognize average annual returns of 8%.
- It is extremely difficult to beat the market:
A separate, peer-reviewed study published in the Journal of Finance looked at 2,076 mutual funds and how they performed over 32 years. The study reported that the number of fund managers who beat the benchmarks of these funds was “statistically indistinguishable from zero.”
Check out the NGPF Activity, Calculate: Compound Interest
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.