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RECOMMENDED GRADE
LEVELS AVERAGE TIME TO COMPLETE
EACH LESSON PLAN IS DESIGNED AND CONTINUALLY
EVALUATED “BY EDUCATORS, FOR EDUCATORS.” THANK
YOU TO THE FOLLOWING EDUCATORS FOR DEVELOPING
COMPONENTS OF THIS LESSON PLAN.
10‐12
Anticipatory Set & Facilitation: 100‐110 minutes
Conclusion/Assessment Options: 15‐45 minutes
Time does not include the vocabulary activity or potential modifications.
Lisa Bender, Business Educator, Oakland, Maryland
Shelly Stanton, Business Educator, Billings, Montana
NATIONAL STANDARDS LESSON PLAN OBJECTIVES
The curriculum is aligned to the following national standards: National Standards for Financial Literacy American Association of Family and Consumer
Sciences Council for Economic Education National Business Education National Jump$tart Coalition Common Core English Language Arts
Upon completion of this lesson, participants will be able to: Compare saving and investing Analyze the relationship between risk and return Distinguish between the most common types of
investments Choose methods that can be used to assist with
investment risk reduction Compare a full‐service brokerage firm and a discount
brokerage firm Analyze the pros and cons of utilizing a financial advisor
at a full‐service brokerage firm Assess the value of tax‐advantaged investments Explore the most common retirement plans
MATERIALS
MATERIALS PROVIDED IN THIS LESSON PLAN
MATERIALS SPECIFIC TO THIS LESSON PLAN BUT
AVAILABLE AS A SEPARATE DOWNLOAD MATERIALS TO ACQUIRE SEPARATELY
DEPENDING ON OPTIONS TAUGHT
Risk vs. Return Chart 2.4.4.A1 The Fundamentals of Investing
2.4.4.A2 Saving and Investing Interview
2.4.4.A3 Saving and Investing Interview
Essay Rubric 2.4.4.B1 The Fundamentals of Investing
Vocabulary List 2.4.4.E1 The Fundamentals of Investing
Information Sheet 2.4.4.F1 Life Events Activity Cards
2.4.4.H1
The Fundamentals of Investing PowerPoint presentation 2.4.4.G1
The Fundamentals of Investing Answer Key 2.4.4.C1
Saving and Investing Unit Multiple Choice Test Bank and Answer Key 2.4.0.M1 & C1
Jenga® with numbers on activity pieces
labeled dice Scratch paper or white boards
with markers Play doh (optional) Butcher paper Large bag of candies (skittles,
M&M’s, jelly beans) Plastic sacks or disposable cups
THE FUNDAMENTALS OF INVESTING Advanced Level
www.takechargetoday.arizona.edu
Material List Continued on Page 2
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Saving vs. Investing Characteristics Cards 2.4.4.H2
Investment Tools Cards 2.4.4.H3 The Fundamentals of Investing
Note Taking Guide 2.4.4.L1
RESOURCES
EXTERNAL RESOURCES
External resources referenced in this lesson plan: Jump$tart Making the Case for Financial Literacy: www.jumpstart.org PBS Your Life Your Money video series: www.pbs.org/your‐life‐your‐money Common Craft – Investing Money: www.commoncraft.com/video/investing‐money Investopedia: www.investopedia.com
o Top 8 Ways Bonds Lose Money www.investopedia.com/articles/bonds/08/lose‐money‐bonds‐losses.asp E‐Trade Baby Commercials: available on YouTube Online Risk Tolerance Quiz: http://njaes.rutgers.edu/money/riskquiz
Virtual Tour of the Stock Market: www.discoveryeducation.com/nyse/index.cfm The Stock Market Game: www.smgww.org Virtual Stock Exchange: http://vse.marketwatch.com/Game/Homepage.aspx WeSeed: www.weseed.com FINRA (Financial Industry Regulatory Authority): www.finra.org SIFMA (Securities Industry and Financial Markets Association): www.sifma.org Invest Write: www.investwrite.org
TAKE CHARGE TODAY RESOURCES
Similar lesson plan at a different level: None available
Optional lesson plan resources: Rolling Jenga Active Learning Tool 3.0.14 A Little Goes a Long Way Visual Aid 4.4.1 Vocabulary Reinforcement Activities Active Learning Tool 3.0.36 Foldables Active Learning Tool 3.0.26 Tablet Applications for the Personal Finance Classroom Active
Learning Tool 3.0.52 Video Clips Relating to Financial Education Active Learning Tool
3.0.48 Technology Integration Options Active Learning Tool 3.0.50 Guest Speaker Active Learning Tool 3.0.22 ‘Round the Bases Active Learning Tool 3.0.27 Fun with Dick and Jane Active Learning Tool 3.0.46
CONTENT
EDUCATOR MATERIALS PARTICIPANT READING
Materials to support educators when preparing to teach this lesson plan are available on the Take Charge Today website.
The Fundamentals of Investing Information Sheet 2.4.4.F1
OPTIONAL ADVANCE INSTRUCTION
This lesson is designed to be taught as a stand‐alone lesson. However, background content knowledge from the following lesson plans is directly related to this lesson and may be helpful for participants.
Choose to Save 2.4.1 Savings Tools 2.4.3
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LESSON FACILITATION
PREPARE
Visual indicators to help prepare the lesson INSTRUCT
Instructions to conduct the lesson facilitation
CUSTOMIZE
Potential modifications to lesson facilitation
VOCABULARY ACTIVITY
Rolling Jenga
Approximate time: 15 minutes before instruction and 30 minutes after instruction Materials to prepare: Rolling Jenga Active Learning Tool 3.0.14 Per group of 3‐5:
o 1 Jenga® with numbers on activity pieces o 1 The Fundamentals of Investing Vocabulary List 2.4.4.E1 o 1 labeled die o Scratch paper or white board with marker o Play doh (optional)
Before instruction: 1. Divide participants into groups of 3‐5. 2. Provide each group with one Jenga® with numbers on the activity pieces and
one The Fundamentals of Investing Vocabulary List 2.4.4.E1 3. The first participant begins by drawing a tower piece from a set‐up tower or
bag and describing what they know about the word. a. If the participant is not familiar with the word, encourage group
members to share their knowledge as well. b. Use the The Fundamentals of Investing Vocabulary List 2.4.4.E1 to
provide the definition if needed. 4. Rotate participants until all vocabulary words have been discussed. After instruction: 1. Conduct the Rolling Jenga activity. Directions are included in the Rolling Jenga
Active Learning Tool 3.0.14.
ANTICIPATORY SET OPTIONS There are two anticipatory set options provided for this lesson. 1. Option 1: Planning for Life Events 2. Option 2: Start Saving – Saving for Retirement Video Clip
Option 1: Planning for Life Events
Approximate time: 15 minutes Materials to prepare: Per group of 3‐5:
o 1 piece of butcher paper o 1 marker o 1 set of Life Events Activity Cards 2.4.4.H1.
1. Split participants into groups of 3‐5. 2. Provide each group with a large piece of butcher paper and a marker. 3. Instruct participants to create a timeline by drawing a line across the center of
If additional vocabulary review is needed, use the Vocabulary Self‐Awareness Chart in the Vocabulary Reinforcement Activities Active Learning Tool 3.0.36 before, during and after instruction.
Use the A Little Goes a Long Way 4.4.1 Visual Aid to illustrate the importance of advance planning.
Double number the vocabulary list so each word/definition has a Jenga® block that corresponds.
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their paper and adding the following life stages. a. Young adult ages 15‐25 b. Working adult with or without children ages 26‐45 c. Pre‐retirement 45‐64 d. Retirement ages 65+
4. Provide each group with a set of Life Events Activity Cards 2.4.4.H1. 5. Indicate that these are common life events for many individuals. Ask
participants to organize the cards in order of when they think most people experience that life event.
6. Ask participants to reflect on the types of events they have categorized. a. How many of the events require advance planning? b. How many of the events require more money than an individual or
family typically has available at one time? 7. Ask participants to reorganize their cards on the timeline to indicate when a
person should start planning for that life event. 8. Place a star on the life events that required less than 5 years of planning.
These are events that may be achieved through savings. For each card, ask participants to estimate how long it would take
9. Circle the life events that require more than five years of planning. These are events that may require investing to be achieved.
10. Remind participants of the curriculum principle “Your Present Self Impacts Your Future Self.”
a. Stress that many life events require advance planning. For example, although retirement is not until the 65+ life stage, individuals should start planning financially for retirement as early as possible.
b. Identify that having enough money for different life events is a result of having a financial plan that includes identifying financial goals, saving and investing.
Option 2: Start Saving – Saving for Retirement Video Clip Approximate time: 15 minutes Materials to prepare: Start Saving – Saving for Retirement of the PBS series Your Life, Your Money.
o The link to this video can be found in the supplemental resources section of the lesson plan.
1. This anticipatory set encourages discussion about where money can be
earned, savings goals, giving to others, and finding a work/life balance. 2. Show Chapter 4: Start Saving – Saving for Retirement of the PBS series Your
Life, Your Money. a. This is a six part series. Select Chapter 4: Start Saving‐ Saving for
Retirement i. Chapter 4 contains two sections Ways to Save with D. Woods
and Saving for Retirement with Maria Cortez. Only the second section (Saving for Retirement) should be shown for this lesson.
3. Discussion questions to use with this video include: a. Is Maria planning her future? If so, how? b. Is Maria saving or investing money? Explain.
Conduct the brainstorming activity electronically by using a brainstorming tool. Reference the Technology Integration Options Active Learning Tool 3.0.50.
Further illustrate the importance of advance planning by providing statistics about how much life events, such as retirement or higher education cost. Use the Jump$tart Making the Case for Financial Literacy document or an Internet search engine for current statistics.
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c. What methods is Maria using to invest for retirement? d. If you were Maria, would you have any worries about the money she
has invested in her retirement? e. Do you think Maria has thought too much about her retirement plans? f. Why is it necessary to invest for retirement? g. If you were Maria, would you change any of the financial decisions
that she has made so far?
RECOMMENDED FACILITATION
PowerPoint Presentation and Note Taking Guide Approximate time: 90 minutes Materials to prepare: 1 The Fundamentals of Investing Note Taking Guide 2.4.4.L1 per person Per person:
o Small plastic bag or disposable cup o 1 Risk versus Return Chart 2.4.4.A1
Per group of 3‐5: o 1 standard die o Large bag of candies (skittles, M&M’s, jelly beans)
Estimate using approximately 10 candies per participant to complete five rounds.
Optional: 1 set of Saving vs. Investing Characteristics Cards 2.4.4.H2 per participant
Optional: Common Craft Investing Money Video Clip 1 set of Investment Tools Cards 2.4.4.H3 per group of 3‐5 Present The Fundamentals of Investing PowerPoint Presentation 2.4.4.G1. Provide each participant with the The Fundamentals of Investing Note Taking Guide 2.4.4.L1. Part 1: Saving vs. Investing 1. Slides 1‐2: Investments
a. Explain that once an individual has established financial security and has enough liquid assets to meet their needs, it is recommended that they refocus their goals from saving to investing.
b. Stress that both savings and investments are important parts of a financial plan.
2. Slide 3: All Investments Have Some Risk a. Investments have the potential of earning higher returns. However, all
investments carry some type of risk. Therefore, a trade‐off to higher returns is that they are less secure with a greater chance of loss.
b. Savings tools have less risk but don’t have the potential for high returns.
Part 2: Saving vs. Investing 3. Slide 4: Investments Are Important to Building Net Worth
a. Saving tools provide the foundation for financial security and build net worth. However, investments have a greater potential to build net worth because of higher returns.
Play “The Gambler” by Kenny Rogers and ask participants to discuss how investing has risk.
Rather than using the note taking guide, have participants create a foldable. Reference the Foldables Active Learning Tool 3.0.26.
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b. On a Statement of Financial Position, investments are investment assets. This is different than savings tools, which are categorized as monetary assets, because investments cannot be quickly converted to cash.
4. Slide 5: Investments Help Accomplish Long‐term Goals a. Ask participants to identify long‐term financial goals an individual may
have. i. Examples include buying a house, funding higher education
and retirement. b. Investments are often used for long‐term goals because of the
potential for higher returns and low liquidity. This is different than savings that is used for short‐term goals and emergencies.
c. If the Planning for Life Events anticipatory activity was conducted, have participants re‐evaluate if the different life events would typically require saving or investing to be achieved. Discuss why.
5. Optional: Common Craft Video “Investing Money” a. Show the 3 minute 21 second video (URL in the Supplemental
Resources Section). b. Provide each participant with a Saving vs. Investing Characteristics
Cards 2.4.4.H2. c. While they are watching the video, have participants sort their cards
into saving or investing categories. 6. Slide 6: Saving vs. Investing
a. Describe the differences between saving and investing. b. Ask participants to identify feelings that result from saving and
investing. i. Stress that their present self‐impacts their future self. Saving
and investing often results in positive emotions long‐term. Answers may include:
1. Lower stress 2. Higher financial well‐being 3. Security 4. Confusion (over choices)
Part 3: Rate of Return 7. Slide 7: Rate of Return
a. Discuss the definition of and equation for rate of return. b. Explain to participants that investments usually earn higher rates of
return than savings tools. 8. Slide 8: What is Mandy’s Rate of Return? 9. Slide 9: Inflation
a. Ask participants how they think inflation relates to investing. i. Explain that inflation risk is usually only a concern when
investing for long‐term goals because the purpose is to provide for future financial security by building net worth.
Optional: Part 4: Risk vs. Return Activity 10. This activity introduces the concepts of investment risk versus potential return
and investment philosophy.
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11. Set‐up: a. Divide participants into groups of 3‐5. b. Pass out one standard, six‐sided die and a large bag of candies
(skittles, M&M’s, or jelly beans) to every group. c. Pass out a Risk versus Return Chart 2.4.4.A1 and a small plastic bag or
disposable cup (to hold their candies throughout the activity) to every participant.
d. Participants will assign one group member to be the “referee.” The referee will be in charge of rolling the die, ensuring participants are giving honest answers, and passing out candies after every round.
12. Play the activity: a. There will be five rounds of play. Before every round participants will
guess as many numbers as they want (1‐6). The number(s) chosen should be marked with an X on the appropriate round of the Risk versus Return Chart 2.4.4.A1.
b. After all group members have selected their number(s), the referee will roll the die. If one of the numbers chosen is rolled, participants will receive candies in return for a correct guess. However, the number of candies received is determined by the number of guesses made. The winnings chart determines the number of candies won for each guess. The winnings chart is provided below and also on the Risk versus Return Chart 2.4.4.A1.
Winnings Chart
Number of Guesses Made 6 5 4 3 2 1
Number of Candies Won 0 1 2 4 6 10
c. Explain to participants that the more guesses the participant has made the fewer number of candies they will receive.
d. After each round, participants should record the number of guesses made, the number rolled by the die, and the number of candies won.
e. Two activity charts are provided on the Risk versus Return Chart 2.4.4.A1. It is recommended that the activity is conducted twice, so the referee can be rotated and results can be compared between both rounds.
13. Follow‐up: a. Instruct participants to total the number of guesses they made and the
number of candies won for each activity. b. Ask participants to share their guesses versus candies won ratios. c. Ask participants the following discussion questions:
i. How did the number of candies won relate to the number of guesses made?
ii. Who had the largest return? Did you have a strategy for play? iii. Did anyone have a strategy for activity play? If so, did the
strategy work? iv. Did anyone choose only one number every time? If so, how
many candies did you win? v. Did anyone choose five numbers every time? If so, how many
candies did you win? vi. If you had to give up candies every time you chose a number
Other markers, such as beans, poker chips, or play money, can easily be used in replace of candy.
Have participants begin the activity with a certain number (may vary per participant) of candies to reflect money invested.
Play the activity “virtually” by not passing out candy until the end of activity. Make the point that this is how they could receive their return on a real investment – over time.
View a classroom demonstration of this activity on the Take Charge Today website.
Have participants respond to the discussion question in writing on the back of their Risk vs. Return 2.4.4.A1 chart.
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would you have played differently? vii. What do you believe your investment philosophy was?
Conservative? Moderate? Aggressive? viii. Did your investment philosophy change throughout the
activity/activities? ix. Do you think that your investment philosophy during the
activity reflected what your investment philosophy is/will be in real‐life?
Part 5: Types of Investment Tools 14. Slide 10: Types of Investment Tools
a. Ask participants to share what they already know about each investment tool.
15. Slide 11: Bond a. Bonds have the least amount of investment risk compared to other
tools, because they are purchased with fixed interest rates. An example of fixed interest is if an investor purchased a $1,000 bond with a 5% annual interest rate, they should receive $50 in interest each year until the maturity date.
b. The exact amount of risk depends on the type of bond purchased. 16. Slide 12: Stock
a. When a stockholder purchases a stock, they own a very small part of the company. Examples include Coca‐Cola, Apple, etc.
17. Slides 13 and 14: Stock Returns a. Returns may be paid on stocks with dividends and capital gains.
However, a return is not guaranteed. b. Dividends may or may not be paid depending on the type of stock and
if a company has made a profit. c. When selecting a stock, individuals try to choose stocks with a market
price that will increase, allowing them to later sell the stock for more than the purchase price. This is a form of unearned income called a capital gain.
d. In general, capital gains have the potential for high returns. But, as the potential for returns increases so does the investment risk and potential for loss.
18. Slide 15: Real Estate a. Examples of real estate investments include rental units or commercial
property. b. Many experts recommend that a primary residence not be considered
an investment asset. However, this depends on many different factors including location and financial situation.
19. Slide 16: Speculative Investments a. Because speculative investments are such a high risk, they are only
recommended for investors with an aggressive investment philosophy and high level of financial security.
i. Futures market – auction market in which participants buy and sell commodity/future contracts for delivery on a specific date. Examples include wheat and cattle.
ii. Options – contract to buy or sell a financial asset at a specified
Further explore features of investment tools using these educational resources: WeSeed Virtual Tour of the
Stock Market The Stock Market
Game Virtual Stock
Exchange FINRA SIFMA
Learn more about investing by watching videos in the Take Charge Today video library (designed for educators).
Read the Top 8 Ways Bonds Lose Money article for more information (link in supplemental resources section).
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point in the future at a specified price. An example is real estate.
iii. Collectibles – cultural artifacts that have value because of their beauty, age, scarcity or popularity such as antiques, stamps, etc.
20. Slides 17 and 18: Mutual Funds a. Discuss the definition of a mutual fund. b. Analyze the advantages and disadvantages.
i. Stress that mutual funds are popular because they reduce the amount of investment risk by spreading among a variety of investments.
ii. Investors are saved time because time is not spent choosing individual investments. Instead, a group of mutual fund managers constantly evaluate which investments to buy and sell. They work with the investors to manage their portfolio.
iii. Because mutual fund managers guide investors, fees are charged.
21. Slide 19 and 20: Ariana’s Investment – Stock vs. Mutual Fund a. Ariana has $150 to invest. She has multiple options with companies A
– G. In the first option, she chooses to invest all of her money in company C’s stock. However, company C has a bad year and the market price drops significantly. Therefore, at this time, Ariana has lost her $150 investment (assuming the company does not rebuild).
b. In option 2, Ariana chooses to invest in a mutual fund splitting her $150 among companies A‐G. Although companies C and F have bad years all other companies have profitable years. Therefore, Ariana has reduced her investment risk and may still have earned a profit.
22. Slide 21: Index Fund a. Ask participants what is the difference between a mutual fund and
index fund. i. The stocks and bonds that make up a mutual fund are chosen
by the fund managers. The stocks and bonds that make up an index fund are based upon a particular index.
ii. Standards and Poor’s 500 (S & P 500) is five hundred widely held common stocks whose average performance serves as a broad‐based measurement of changes in stock price.
iii. Dow Jones Industrial Average is a price‐weighted average of 30 actively traded blue‐chip stocks. It is the oldest and most widely used of all stock market indicators.
iv. NASDAQ 100 – a stock market indicator of 100 of the largest non‐financial companies listed on the NASDAQ.
23. Slide 22: Lending vs. Owning a. Identify that when investing, consumers either lend money to the
company/organization or they own the asset. b. An example of lending is a bond that earns interest. c. An example of owning is stock, real estate or speculative investments
which have returns in the form of dividends, rents or capital gains. 24. Slide 23: Knowledge of the General Risk Level Helps Manage Risk
a. By understanding the risk associated with an investment, the
Have participants compare the types of index funds using websites such as Investopedia.
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uncertainty of that risk can be better managed. b. Typically, if an individual owns an asset they have the potential for
higher returns, such as capital gains. However, the trade‐off is higher investment risk.
c. Some investments have multiple types of returns. Therefore, within a particular investment tool, the risk level may vary.
d. The type of return for a speculative investment depends on the investment. While speculative investments have the potential for high returns they are very risky.
25. Slide 24: Characteristics of Investment Tools a. Divide participants into groups of 3‐5. b. Give each group one set of Investment Tools 2.4.4.H3 cards. c. Although the exact level of risk and returns will vary among
investment tools depending on the type of tool, tools typically have the same characteristics.
d. Ask participants to order the cards from lowest to highest risk. Explain why.
i. High risk is speculative investments and the returns will vary. ii. Medium risk is stock, real estate, mutual funds and index
funds. The exact risk level varies depending on the type of investment. Mutual funds and index funds are typically lower risk because they include multiple investment tools.
iii. Low risk is bonds and the return is a fixed interest rate. e. Ask participants to order the tools from lowest to highest potential
returns. Explain why. i. Cards remain in the same order as they were for investment
risk. Higher risk typically means the potential for higher returns.
f. Ask participants to order the tools from lowest to highest inflation risk. Explain why.
i. The order of cards is reversed. Bonds have the highest inflation risk because their potential for returns is the lowest and therefore there is a greater chance their rate of return will not be higher than inflation.
26. Slide 25: Investment Philosophy a. The potential for higher returns often motivate people to take on a
higher level of risk. b. An individual’s personality will often influence their investment
philosophy. c. Investing for different purposes may influence their investment
philosophy. For example, a person with 30 years until retirement may have a more aggressive philosophy than someone who needs to access their retirement funds in 5 years and should be more conservative.
d. Ask participants if someone was an aggressive investor, what types of investment tools would they primarily have in their portfolio.
i. Higher risk tools including speculative investments, real estate and stocks.
27. Slide 26: Portfolio Diversification a. Portfolio diversification is one of the best ways to reduce investment
To visually illustrate the concept of portfolio diversification, create a visual of the saying “don’t put your eggs in one basket.” Place different colored plastic eggs inside a basket and label them with the various types of investments.
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risk. b. Most people diversify their portfolio to align with their investment
philosophy. Part 6: Brokerage Firms 28. Slide 27: Stock Exchange
a. In order to buy or sell an investment (other than real estate and certain speculative investments) they must utilize a brokerage firm.
29. Slides 28‐30: Brokerage Firms a. Edward Jones and Merrill Lynch are examples of full‐service brokerage
firms. E*TRADE is an example of an online discount brokerage firm. b. All brokerage firms charge a fee for their services. c. Full‐service firms often charge higher fees because they offer a
financial advisor and advice. d. Because the investing process is complex and requires an individual to
have knowledge of the market/economy, types of investments and time, many view the fees charged by a full‐service firm to be worth the cost.
e. Many firms offer automatic transfers and deposits. 30. Slide 31: Choosing a Brokerage Firm
a. It is important to always ask a financial advisor how they will be compensated (per transaction, commission, etc.) if you hire them. This information helps you to critically evaluate the advice they are providing.
i. Those working on for a commission based on the value of your portfolio have a greater incentive to make you wealthy.
Part 7: Tax‐Advantaged Investments 31. Slide 32: Tax‐Advantaged Investments
a. Stress that because savings and investments are a form of unearned income, they are subject to income tax.
b. Individuals may reduce their tax liability by investing in tax‐advantaged investments.
32. Slide 33: When are Taxes Paid? a. Taxes are typically paid when the money is invested, or on a tax‐
advantaged account when the money is withdrawn. The advantage is the money grows untaxed with help from compounding interest.
33. Slide 34: Investing for Retirement a. Mutual funds are typically an important part of an individual’s
retirement portfolio. b. When investing for retirement, invest as much money as possible in
tax‐advantaged accounts. There are often annual maximums that may be invested.
c. If an individual works at a place where an employer ‐sponsored plan is an option, they are highly recommended. Not only is it tax‐advantaged, but the deductions are often automatic and the employer will match a portion of the investment.
34. Slide 35: Retirement Accounts a. The trade‐off to tax‐advantaged accounts is there are penalties if the
Show the E‐Trade Baby commercials to discuss different types of brokerage firms. These commercials are available on YouTube. Refer to the Video Clips Relating to Financial Education Active Learning Tool 3.0.48 for additional information.
Use an Aging App to have participants create a picture of themselves in 40 years. Reference the Tablet Applications for the Personal Finance Classroom Active Learning Tool 3.0.52.
Use the Fun with Dick and Jane Active Learning Tool 3.0.46 to discuss the importance of a diversified portfolio.
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money is withdrawn early. The most common plans in the workplace are 401(k) and 403(b) plans.
b. Individuals may also choose to personally invest in tax‐advantaged retirement accounts including Traditional and Roth IRA’s.
35. Slide 36: Summary a. Ask participants to describe why each point is important.
CONCLUSION OPTIONS There are three conclusion options provided for this lesson. 1. Option 1: Rolling Jenga 2. Option 2: ‘Round the Bases 3. Option 3: Risk Tolerance Quiz
Option 1: Rolling Jenga Approximate time: 30 minutes Materials to prepare: Rolling Jenga Active Learning Tool 3.0.14 Per group of 3‐5:
o 1 Jenga® with numbers on activity pieces o 1 The Fundamentals of Investing Vocabulary List 2.4.4.E1 o 1 labeled die o Scratch paper or white board with marker o Play doh (optional)
1. Conduct the Rolling Jenga activity. Refer to the Rolling Jenga Active Learning
Tool 3.0.14 for directions and materials. a. Rolling Jenga is an activity used to reinforce vocabulary by having
participants draw pictures of terms, define terms, use a term in a sentence and describe why a term is important.
Option 2: ‘Round the Bases Approximate time: 30 minutes Materials to prepare: ‘Round the Bases Active Learning Tool 3.0.27
o The Fundamentals of Investing Questions 3.0.27.E3 4 items to serve as bases such as:
o 4 orange spots or cones
o 4 chairs
o 4 signs detailing 1st base, 2nd base, 3rd base, and home plate taped to a chair in the classroom
1 chair to serve as the pitcher’s mound 2 clipboards or dry erase boards (1 for each team)
1. Conduct the financial baseball activity. Refer to the ‘Round the Bases Active
Learning Tool 3.0.27 for directions and materials. a. The purpose of ’Round the Bases is to provide an opportunity for
students to review important content from any lesson. The baseball game format is staged just like America’s favorite pastime and designed to be played in a friendly, competitive format that requires everyone in the class to be engaged (in other words, no one stays in
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the dug‐out for this activity; everyone will eventually have a chance “at bat”).
Option 3: Risk Tolerance Quiz Approximate time: 15 minutes Materials to prepare: Internet access Risk Tolerance Quiz (URL in the supplemental resource section)
1. Take a Risk Tolerance Quiz to determine personal investment philosophy and
tolerance for risk. A link to an online risk tolerance quiz is available in the supplemental resources section of the lesson plan.
a. Depending on knowledge of the participants, additional assistance or explanation from the educator may be necessary for a few of the questions.
b. Possible discussion questions following the quiz: i. What was your risk tolerance numerical score?
ii. What is your risk tolerance level? iii. Do you believe this score is accurate? iv. Do you think this will change throughout your life? Why or
why not? v. Why is it important for an individual to know their personal
investment philosophy? c. Poll participants to see how many have a below‐average tolerance,
average tolerance, or above‐average tolerance for risk.
ASSESSMENT OPTIONS There are two assessment options provided for this lesson. 1. Option 1: Reinforcement Worksheet 2. Option 2: Saving and Investment Interview
Option 1: Reinforcement Worksheet Approximate time: 20 minutes Materials to prepare: 1 The Fundamentals of Investing 2.4.4.A2 per participant 1. Complete the The Fundamentals of Investing 2.4.4.A2 reinforcement
worksheet.
Option 2: Saving and Investment Interview Approximate time: 20 minutes Materials to prepare: 1 Saving and Investing Interview 2.4.4.A3 per participant 1 Saving and Investing Interview Essay Rubric 2.4.4.B1 per participant 1. Participants must identify a retired person over 50 and interview them. The
Saving and Investing Interview 2.4.4.A3 is provided. In addition to the questions provided, participants must create two additional questions.
2. Participant will reflect on their interview by writing an essay using the Saving and Investing Interview Essay Rubric 2.4.4.B1.
Invite a guest speaker such as a Certified Financial Planner, individual preparing for retirement or securities broker to talk about investing. Reference the Guest Speaker Active Learning Tool 3.0.22 for support tools.
Create a graph illustrating the risk tolerance levels of participants. Discuss what types of investment tools would comprise a portfolio for each tolerance level.
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The Fundamentals of Investing Vocabulary List
TERM DEFINITION
1 Bond A form of lending to a company or the government (city, state, or federal)
2 Brokerage firm Facilitates the buying and selling of investments from a stock exchange
3 Capital Gain Unearned income received from the sale of an asset above its purchase price
4 Discount brokerage firm
Only completes orders to buy and sell investments
5 Dividend The share of profits distributed in cash
6 Financial advisor A trained professional that helps people make investing decisions
7 Full‐service brokerage firm
Offer investment transactions as well as investment advice and a financial advisor
8 Index A group of similar stocks and bonds
9 Index fund A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index
10 Inflation The rise in the general level of prices
11 Inflation risk The danger that money won’t be worth as much in the future as it is today
12 Investment Assets purchased with the goal of providing additional income from the asset itself but with the risk of loss
13 Investment philosophy An individual’s general approach to investment risk
14 Investment risk The possibility that an investment will fail to pay the expected return or fail to pay a return at all
15 Market price The current price that a buyer is willing to pay
16 Maturity date The specified time in the future when the principal (or initial investment) amount of the bond is repaid to the bondholder
17 Mutual fund Created when a company combines the funds of many different investors and then invests that money in a diversified portfolio of investments
18 Portfolio diversification Reduces risk by spreading money among a wide array of investments
19 Rate of return The total return on an investment expressed as a percentage of the amount of money saved
20 Rent A fee charged for the use of property or land
21 Return The profit or income generated by saving and investing
22 Risk The chance of loss from an event that cannot be entirely controlled
23 Speculative investments
Have the potential for significant fluctuations in return over a short period of time
24 Stock A share of ownership in a company
25 Stockholder or Shareholder
The owner of a stock
26 Stock exchange An organized, central service to buy and sell stocks, bonds and other investments that are traded
27 Tax‐advantaged investments
Reduce, defer, or adjust the current year tax liability
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Life Events Activity Cards
Receiving Higher Education
Retiring
Establishing a Savings Fund
Getting Married
Buying a Home Buying a Vehicle
Starting a Family Going on Vacation
Starting a Career Building Net Worth
2.4.4.H1 2.4.4.H1
2.4.4.H1 2.4.4.H1
2.4.4.H1 2.4.4.H1
2.4.4.H1 2.4.4.H1
2.4.4.H1 2.4.4.H1
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The Fundamentals of Investing Note Taking Guide Total Points Earned
Name
Total Points Possible
Date
Percentage
Class
Investments have the potential for
____________ returns.
Define return:
All investments have some
_____________.
Define investment risk:
Characteristics of Investments
Investments are important to building
____________ _____________.
Define investments:
Investments are for
___________ __________ goals.
Why are investments less liquid than savings tools?
Two examples of long‐term goals are:
Rate of return:
Strive to have the rate of return on an
investment be _________________
than the rate of inflation.
Define inflation risk:
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Bond
Definition:
Description:
Risk level:
Type of return:
Stock
Definition:
Dividend returns are:
Capital gain returns are:
Risk level:
Real Estate
Definition:
Types of returns include:
Risk level:
Speculative Investments
Definition:
Examples include:
Returns:
Risk level:
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Mutual Fund & Index Fund
Definition:
What is included?
Types of returns:
Risk level:
Advantage:
Disadvantage:
How is an index fund different than a mutual fund?
Lending vs. Owning
Lending
Type of investment tools:
Type of returns:
Owning
Type of investment tools:
Type of returns:
Typically, investments that are a form of owning have:
_________________
potential for high returns
________________
inflation risk
______________
investment risk
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Investment Philosophy
Each individual has a
tolerance for the
amount of
_________________
Generally divided into three categories:
May be influenced by:
Portfolio Diversification
Definition:
Purpose:
Impact it has on risk:
Brokerage Firms
What is a stock exchange?
What is a brokerage firm?
What is the difference between a full‐service and discount brokerage firm?
All brokerage firms charge
____________ for their services.
What is one question to ask when choosing a firm?
Tax‐Advantaged Investments
How do tax‐advantaged investments benefit
consumers?
When are taxes paid?
Why should an employee invest in an employer‐sponsored
plan?
What are examples of retirement accounts?
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On the correct round row, mark which numbers you would like to guess. Roll the dice.
If the number rolled matches one of the numbers you chose, you will receive tokens!
Use the winnings chart to determine the number of tokens won based upon the number of guesses you made.
If the number rolled does not match one of the numbers you chose, you will receive no tokens.
Risk versus Return Chart Directions: Use the Activity 1 and Activity 2 charts to record guesses and winnings from the Risk versus Return activity. Follow the directions in the flow chart below for each round.
Activity 1
Activity 2
Number on Die
1 2 3 4 5 6 Number Rolled
Number of
Guesses
Candies Won
Round 1
Round 2
Round 3
Round 4
Round 5
Total:
Winnings Chart
Number of Guesses 6 5 4 3 2 1
Number of Candies Won 0 1 2 4 6 10
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Saving vs. Investing Characteristics Cards
Emergencies Long‐term goals
More Liquid Less Liquid
Limited Risk Higher Risk
Lower Returns Higher Returns
Financial Security Net Worth
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Investment Tools Cards
Investment Tools Investment Tools
Speculative Investment Stock
Investment Tools Investment Tools
Real Estate Mutual Fund
Investment Tools Investment Tools
Index Fund Bond
2.4.4.H3 2.4.4.H3
2.4.4.H3 2.4.4.H3
2.4.4.H3 2.4.4.H3
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The Fundamentals of Investing Total Points Earned
Name
44 Total Points Possible
Date
Percentage
Class
Directions: Define each of the following types of investment tools. Indicate if each tool is a form or lending or owning. (2 points each)
Investment tool Definition Is it a form of lending or owning?
Stocks
Bonds
Mutual funds
Index funds
Real estate
Speculative investments
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Directions: Match the following words with the correct definition. (1 point each)
1. _____ The possibility that an investment will fail to pay the expected return or fail to pay a return at all.
2. _____ The rise in the general level of prices.
3. _____ The uncertainty regarding the outcome of a situation of event.
4. _____ The danger that money won’t be worth as much in the future as it is
today.
Directions: Complete the following questions.
5. Provide three examples of how the purpose of investing is different than the purpose of saving. (4 points)
6. Complete the pyramid by order the following from high risk to low risk. (4 points) o Bonds o Stock and Real Estate o Speculative o Mutual funds and index funds
7. Describe the four types of returns. (4 points)
o Interest:
o Dividends:
o Rents:
o Capital Gains:
A. Inflation
B. Inflation risk
C. Investment Risk
D. Risk
High Risk
Low Risk
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8. Describe the concept of investment philosophy and how it relates to portfolio diversification. (2 points)
9. What is the difference between a full‐service brokerage firm and a discount brokerage firm? (2 points)
10. What are two questions you should ask before hiring a brokerage firm? (2 points)
11. What are two benefits of a tax‐advantaged account? What is a trade‐off? (3 points)
Directions: For the following questions, please indicate if the statement is True or False by writing a T or F on the line. (1 point each)
12. ____ Taxes must be paid on all investment profits in the year the unearned income is received.
13. ____ When focusing on wealth accumulation, the rate of return earned on an investment should be
higher than the rate of inflation.
14. ____ An individual’s investment philosophy changes throughout their lifetime.
15. ____ Individuals with an aggressive investment philosophy are not willing to take on risk for the potential of higher returns.
16. ____ Portfolio diversification is a method that helps an individual receive the highest return on
investment.
17. ____ In order to buy and sell investments (except for real estate and certain speculative investments), an individual needs to utilize a brokerage firm.
18. ____ A full service general brokerage firm usually charges lower commission fees than a discount
broker.
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Saving and Investing Interview Total Points Earned
Name
14 Total Points Possible
Date
Percentage
Class
Directions: Interview a retired adult over the age of 50. This person should be someone you know and care about. In addition to the interview questions below, develop two additional questions to ask. (14 points for
completion)
1. Were you able to save and invest money in your 20’s, 30’s, 40’s and 50’s?
a. If so, what saving and investment tools did you use at each stage?
2. What were your greatest challenges to saving money? 3. What is a financial goal you have achieved in your lifetime and how did you approach this goal?
4. Financially, what do you worry about the most when thinking about retirement?
5. What advice would you give someone my age about saving and investing for the future?
6. Additional question:
7. Additional question:
Name of adult
Signature
Date
20's
30's
40's
50's
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Saving and Investing Interview Essay Rubric
Total Points Earned
Name
21 Total Points Possible
Date
Percentage
Class
Directions: Write a reflective essay about your Saving and Investing Interview 2.4.4.A3. The essay must
answer these questions:
In your opinion, what was the most interesting response you received in the interview process? How did this interview influence your perspective about saving and investing for the future? As a result of the interview, what is one thing you will begin doing today to prepare for your financial
future?
Exemplary Satisfactory Unsatisfactory No Performance
Score
Content: All three reflective questions are
addressed Answer are thoughtful and reflective
12‐9 8‐5 4‐1 0
Writing Skills: Sentences are fluent and effective Very few errors in mechanics,
punctuation and word choice Essay includes an introduction, body,
and conclusion
6‐5 4‐3 2‐1 0
Effectiveness of Presentation: Clearly prepared Easily read and neatly assembled Minimum of one‐page, double‐
spaced with 12 font and 1‐inch margins.
3 2 1 0
Total Points Earned Total Points Available 21
Percentage
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2.4.4.F1
Advanced Level
Saving money for future consump on is an important factor of your financial plan. You can save money in a savings tool
(savings account at your depository ins tu on) or in an investment. Investments are assets purchased with the goal of
providing addi onal income from the asset itself but with the risk of loss. Your financial plan would not be complete without
both savings and investments.
Saving vs. Inves ng
You shouldn’t use investments for savings or short‐term goals/expenses because of two primary reasons:
1. Unlike insured savings tools, investments are not secure. There is a chance that some or all of your money invested could
be lost.
2. Investments are less liquid than savings tools. That is, investments may not be easily converted
to cash or you may have to pay a penalty to access the money. In fact, with some investments
you may have to wait a long me, even years, to access the funds.
Investments help build your net worth because they have the poten al to earn higher returns than
savings tools. A return is the profit or income generated by saving and inves ng. Your trade‐off to
earning higher returns is higher investment risk. Risk is the chance of loss from an event that cannot
be en rely controlled. Unlike savings tools, all investments carry investment risk, which is the
possibility that an investment will fail to pay the expected return or fail to pay a return at all. As the
poten al return rises, generally, so does the investment risk involved.
Investments are assets because they have monetary value. On your Statement of Financial Posi on, investments are listed as
investment assets. Saving tools are listed as monetary assets, assets that can be quickly and easily converted into cash.
Inves ng helps you
cope with risk and
uncertainty.
Knowledge of the
general risk level for
investment returns
helps you manage
your risk.
As a result of the poten al for higher
returns and low liquidity, money invested is
usually used to pay for long‐term (more
than five years) goals and expenses such as
a down payment for a house in ten years, a
young child’s higher educa on in fi een
years, or re rement income in thirty years.
As a guide to spending, it is recommended
that you dedicate at least 10% of net
income to savings and investments each
me income is received.
More Liquid
Emergencies Limited Risk
Lower Returns (0‐4%)
Financial Security
Less Liquid
Higher Risk
Higher Returns (8‐12%)
Net Worth
Long‐ term goals
Inves ng
Saving
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2.4.4.F1
Rate of Return
The amount of return you earn on a savings tool or investment
is determined by calcula ng the rate of return, the total return
expressed as a percentage of the amount of money saved.
Example: Mandy saved $2,200 in a money market deposit
account. A er one year, she has a return of $110. What is
Mandy’s rate of return?
You should strive to have the rate of return earned on an
investment be higher than the rate of infla on. Infla on
is the rise in the general level of prices. If you invest
money at a 2% interest rate, and the infla on rate is 2%,
then your purchasing power will not be increased. In fact,
a er you pay taxes on your investment income, you will
actually be losing money. Infla on risk is the danger that
money won’t be worth as much in the future as it is
today. Infla on risk is a concern with investments
because it defeats the objec ve of providing for future
financial security by building net worth.
Most Common Types of Investments
Bond
A bond is a form of lending to a company or the government (city, state, or
federal). When you purchase a bond, you are lending money to an organiza on in return for a fixed interest rate. The
organiza on (usually a company or the government) pays interest (usually bi‐annually or annually) to you un l the maturity
date is reached. The maturity date is the specified me in the future when the principal amount of the bond is repaid to the
bondholder. In general, bonds have the least amount of investment risk. Bonds are the most predictable investment since
bonds are purchased with a fixed interest rate. However, there is a risk that interest won’t be paid and/or the principal
amount of the bond won’t be repaid. The specific investment risk level depends on the type of bond; higher risk bonds tend
to have higher interest rates.
Bond example:
A $1,000 five year bond with a 5%
annual interest rate.
You should receive: $50 in
interest each year for five years
and at the end of five years, your
$1000 principal investment.
Stock
Stock is a share of ownership in a company, and the owner of the stock is called the stockholder or shareholder. The
amount of stock you purchase determines how much of the company you own (usually a small percentage). If the company
makes a profit, then you may receive part of that profit as a return. This is called a dividend, which is the share of profits
distributed in cash. When you own a stock, you expect that the market price (the current price that a buyer is willing to pay)
of the stock will increase. Therefore, if you are able to sell stocks for a market price higher than what was paid, you will
receive a return, known as a capital gain (unearned income received from the sale of an asset above its purchase price). In
general, capital gains have the highest investment risk of all returns, but also have the poten al for the highest amount of
return. For example, if the company performs poorly or goes out of business, you could lose part or all of your principal
investment, depending on the market price at which you were able to sell the stocks.
Total Return
Amount of Money
Invested
Rate of Return
$110 $2,200 .05 = 5%
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2.4.4.F1
More Types of Investments
Real Estate
Real estate can include ownership of residen al or commercial property or land as
well as the rights accompanying that land. When you invest in real estate, you may
earn returns in the form of capital gains and rents. Capital gains come from selling
the real estate for more than what you paid. Rent is charged for the use of the
property or land. For example, if you own a residen al real estate property you can
rent it to a family in exchange for them living there. Real estate can be more me
consuming than other forms of inves ng.
Many experts recommend that a
primary residence not be
considered an investment asset.
However, this depends on several
factors including where you live
and your personal financial
situa on.
Specula ve Investments
Specula ve investments have very high levels of investment risk. Specula ve investments have the poten al for
significant fluctua ons in return over a short period of me. Some examples of specula ve investments are futures,
op ons, and collec bles. These are recommended for people with an aggressive investment philosophy and a high level
of financial security.
Mutual Funds
A mutual fund is created when a company combines the funds of many different investors and then invests that money in
a diversified por olio of investments. Mutual funds may include stocks, bonds, real estate, and/or specula ve
investments. The return from a mutual fund may include interest, dividends, rents, and/or capital gains. When you invest
in a mutual fund you receive a percentage of the total return based upon the amount of mutual fund owned. Mutual
funds reduce your investment risk by spreading risk among a variety of investments. If one investment within the mutual
fund fails to pay a return, chances are high that another investment within the fund will s ll pay a return. Mutual funds
save you me, because me is not spent choosing individual investments. Instead, a group of mutual fund managers
constantly evaluate which investments to buy and sell. Therefore, mutual fund managers charge fees which can be higher
than if you purchased individual investments. However, fees charged vary depending upon the type of mutual fund and
the company that offers it.
Index Funds
An index fund is a type of mutual fund that was designed to reduce fees by inves ng in the stocks and bonds that make
up an index. An index is a group of similar stocks and bonds. For example, the Standard and Poor 500 is an index that
includes the 500 largest companies that sell stock. By buying and holding a specific set of stocks and bonds, index funds
require very li le management compared to mutual funds and can charge lower fees.
What is an example of an investment goal you have?
What types of investment tools would you use to achieve that goal and why?
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2.4.4.F1
Lending vs. Owning
Investment Philosophy
Increasing poten al for higher returns Increasing investment risk Decreasing infla on risk
You are lending money with some investments, such as bonds. Your returns are in the form of
interest. You own something with other investments, such as stocks, real estate, and specula ve.
When you own an investment, your returns are in the form of dividends, rents, and capital gains.
Typically, when you lend,
both your returns and level
of investment risk are lower.
On the other hand, when
you own you have greater
investment risk, but also the
poten al to earn higher
returns and experience the
least infla on risk.
The poten al for higher returns can be what mo vates you to accept higher amounts of investment
risk. Everyone has a personal tolerance level for the amount of investment risk they are willing to
assume. This is known as an investment philosophy, or an individual’s general approach to investment
risk. Investment philosophies are generally divided into three main categories: conserva ve, moderate,
and aggressive. If you have an aggressive philosophy you are willing to take on more investment risk
for the poten al of higher returns. The amount of me you have may also influence your investment
philosophy. Your philosophy may be different with a fi een year investment than a thirty year
investment.
Por olio diversifica on is a method to assist you with risk reduc on. Por olio diversifica on reduces
your risk by spreading money among a wide array of investments. Chances are if one investment is
losing money, another will be earning a return. The goal of diversifica on is to create a collec on of
investments that will provide you with both an acceptable return and an acceptable exposure to risk.
Most people diversify their por olio according to their investment philosophy. For example, a person
with an aggressive investment philosophy will most likely include a larger amount of high investment
risk in his/her por olio.
How Do You Purchase Investments?
When you purchase an investment (except for real estate and some specula ve investments) you are doing so from a stock
exchange. A stock exchange provides an organized, central service to buy and sell stocks, bonds, and other investments that
are traded. Worldwide, there are many different stock exchanges and a limited number of people are allowed to buy and sell
directly from each stock exchange. Therefore, if you want to purchase an investment, a brokerage firm must be u lized. A
brokerage firm facilitates the buying and selling of investments from a stock exchange. Brokerage firms act as an
intermediary between the stock exchange and the investor. You will pay a brokerage firm a fee for their services. There are
two types of brokerage firms that differ in the fees charged and services provided:
Discount brokerage firm ‐ provides limited services. A discount brokerage firm only completes orders you give them to buy
and sell investments; they do not provide you with advice as to which investments to buy and sell. Because of this, discount
brokerage firms usually charge lower fees and/or commissions than full‐service brokerage firms.
What type of
investment
philosophy would
you have?
Lending Owning
Interest Dividends Rents Capital Gains
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2.4.4.F1
Full‐service brokerage firm (also known as
tradi onal brokerage firms) – offer you investment
transac ons as well as investment advice and a
financial advisor. A financial advisor is a trained
professional that helps people make inves ng
decisions.
The process of inves ng is complex. Choosing investments and crea ng a
personal inves ng plan requires knowledge of the market/economy,
knowledge of the specific investment, me to monitor the investment, etc.
An advantage to a full‐service brokerage firm is that you have access to
financial advisors who use their exper se to help you with the inves ng
process as well as ensure you are mee ng personal financial goals. Financial
advisors may also inform you of investment op ons that you may have not
known about otherwise. For many, the advice and me of a financial
advisor are worth the fees paid.
Just as with saving, inves ng money is most successful when you make it
automa c. Brokerage firms provide automa c transfers/deposits to make
inves ng automa c. You may find that developing a rela onship with a
financial advisor also helps you stay on track with a personal financial plan
Edward Jones and Merrill Lynch are
examples of full‐service brokerage firms.
E*TRADE is an example of an online
discount brokerage firm. Many discount
brokerage firms are online only.
Discount
Broker
Full‐service
Brokerage Firm
What are two advantages and
disadvantages to a discount broker and full‐
service brokerage firm?
When choosing a brokerage firm, you should understand how that firm charges fees. Full‐service and discount brokerage
firms charge fees in different ways:
Discount brokerage firm – Will usually charge a fee for comple ng a buy/sell transac on for you (o en referred to as an
order). Other fees will vary but may include: ○ Service fee – This is usually a quarterly or annual fee charged to the consumer to use the service. ○ Maintenance fee – This fee is usually charged if the value of an investment(s) is below a specific minimum
balance requirement. ○ Inac vity fee – If you haven’t completed an order within a certain period of me. ○ Fees specific to an investment – Discount brokers may charge fees specific to the type of investment you are
trading (stock, bond, mutual fund, etc.).
Full‐service brokerage firm – Financial advisors for full‐service brokerage firms are compensated
for the me and knowledge provided to investors. Therefore, fees are charged in a different
manner than discount brokerage firms: ○ A percentage of the investment value – Financial advisors receive a percentage of the
total value of an investment. For example, an investor’s mutual fund is worth $1,000.00.
A financial advisor charging a 2% value fee would earn $20 ($1,000.00 * .02).
○ A percentage of the amount deposited – financial advisors receive a percentage of the
amount invested. For example, an investor contributes $1,000.00 to an investment
worth $5,000.00. A financial advisor charging a 4% deposit fee would earn $40.00 ($1,000.00 * .02=4). ○ Hourly rate and flat fee – A brokerage firm will charge the consumer an hourly rate or flat fee to give advice or
complete a project.
Most financial
advisors charge a
percentage on
either the value of
the investment or
amount deposited
– not both.
Choosing a Brokerage Firm
© Take Charge Today – August 2013 – The Fundamentals of Inves ng – Page 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Ins tute at The University of Arizona
2.4.4.F1
In addi on to fees, financial advisors may earn commissions. The investor does not pay commissions; companies pay
commissions. For example, if you decide to invest in a specific company’s mutual fund through a financial advisor, the
company will pay the financial advisor a commission. Even though commissions aren’t a direct cost to you it is s ll
important to know whether or not a financial advisor is compensated via commissions. A financial advisor that earns
commissions may be biased towards a specific product rather than offering inves ng advice that is best for your financial
goals.
How financial advisors are compensated (fees and/or commissions) depends on the brokerage firm the financial advisor
works for. Therefore, when choosing a financial advisor, begin by researching brokerage firms.
Always ask financial
advisors for a clear
explana on of how they will
be compensated.
Tax‐Advantaged Investments
Savings and investments are a form of unearned income and are therefore subject to income
tax. However, the government encourages you to invest in certain types of investments by
making them tax‐advantaged. Tax‐advantaged investments are structured with tax benefits to
investors in mind. Tax‐advantaged investments are usually not tax free and instead reduce,
defer, or adjust the current year tax liability. You most likely pay taxes the year money is put into
the investment or the year money is taken out, whereas other investments are subject to
income tax every year. The money that you would have paid in taxes can remain in the tax‐
advantaged investment to earn interest on interest and increase value faster. The most common
tax‐advantaged investments are offered for those who wish to invest in re rement and
educa on; however, there are tax‐advantaged investments for other purposes.
There are usually limits to
the amount of money per
year that can be invested
in a tax‐advantaged
investment.
Choosing a Brokerage Firm con nued…
What are two reasons
you would want to use
a tax‐advantaged
investment?
It is very important to research a financial advisor and the firm he/she works for. The FINRA Broker Check
(h p://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm) is a free tool to help investors research the
professional backgrounds of brokerage firms and financial advisors.
Ques ons To ask:
How are the firm’s financial advisors compensated?
How long has the firm been in business?
Does the firm have a history of posi ve reviews and success?
How does the firm rank in comparison to other brokerage firms?
Tax‐advantaged investments
reduce, defer or adjust the
current year tax liability
Most common: Re rement Educa on
© Take Charge Today – August 2013 – The Fundamentals of Inves ng – Page 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Ins tute at The University of Arizona
2.4.4.F1
Inves ng for re rement is an important financial goal and must be carefully planned over a long period of me.
To help you invest in re rement, the government and many employers have created investment plans specifically for
re rement. The inves ng process is similar to other investments. You choose investments, which are usually mutual funds.
Then, the money contributed is deposited into the investment(s) of your choice. Re rement plans are tax‐advantaged to
encourage you to save for re rement. If it is an employer‐sponsored re rement plan, the employer helps you invest by
automa cally deduc ng money to invest from wages earned. The employer may also contribute a por on of money to the
investment (also known as matching funds) with no addi onal cost to you.
However, the trade‐off to the tax advantages is that most re rement plans have penal es if money is withdrawn before you
reach a specific re rement age (the specific age depends on many factors). The most common re rement plans are:
Employer sponsored re rement plans
○ The most common employee sponsored re rement plans are called a
401(k) and 403(b). Both plans are very similar; the specific plan your
employer offers will depend on what type of employer you have (a
private business, public en ty, non‐profit organiza on, etc.). 403(b)
plans are designed for tax‐exempt organiza ons.
Personal re rement accounts
○ There are re rement plans that offer tax benefits without employer sponsorship. The most common personal
re rement accounts are the Tradi onal IRA (Individual Re rement Account) and the Roth IRA. The difference
between a Tradi onal IRA and Roth IRA is when taxes are paid on the investment. Taxes are paid on a Tradi onal
IRA in the year money is withdrawn from the account. Taxes are paid on a Roth IRA in the year money is
deposited into the account. Your personal financial situa on will determine if a Tradi onal IRA, Roth IRA, or a
mixture of both accounts is best for you.
There are many other types of re rement plans. Your employment status as well as your personal financial situa on will
determine which re rement plan(s) is best for you.
When available, use an employer‐
sponsored re rement account as
much as possible.
Inves ng for Re rement
It is recommended to u lize
employer‐sponsored
re rement accounts as much
as possible if available.
Your present self impacts your future self!
Investments have the poten al to earn higher returns than savings tools and are thus important to building net worth
(wealth). However, a trade‐off to higher returns is lower liquidity and higher investment risk. This makes investments ideal
for a long‐term me frame (generally more than five years). Discussing your financial goals with a financial advisor is a great
step to begin inves ng. Taking advantage of por olio diversifica on, tax‐advantaged investments, and the benefits of
employer‐sponsored re rement plans will maximize your return.