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Morningstar
Early Investor Education

Financial Investing

Harron Young, Jessica Gibson

Welcome to Financial Investing, the sixth course in a six-part curriculum focused on personal finance and financial literacy. For directions on how to teach this curriculum, see How To Use This Curriculum.

Goals and Outcomes

These are concepts students should understand upon completion of this course and the final project. All outcomes are taken straight from—and expand upon—those of the National Standards for Financial Literacy:

  • People can earn money from investing in financial assets, such as stocks and bonds.
    • Stockholders own a fraction of the companies they invest in, and some companies share dividends, or a percentage of profits, with their shareholders.
    • In the case of bonds, investors loan an amount of money to a company or government entity for a fixed period of time, during which bondholders receive regular interest payments.
  • Federal, state, and local tax rates vary with different investment types, and they affect the after-tax rate of return on an investment.
  • The total return on a financial investment is measured by subtracting inflation, taxes, and fees from the nominal return (the total amount earned).
  • Return on investment can also be affected by the expenses associated with buying, selling, and holding financial assets, such as transaction costs and taxes.
  • The prices of financial assets are determined by supply, which is affected by sellers, and by the demand of buyers on the market. These forces also influence the rates of return on those assets.
  • Riskier investments commonly have a lower market price, and therefore a higher rate of return, than less-risky investments.
  • Longer-term investments (investments held for a year or more) tend to have a higher rate of return than short-term investments.
  • Investors can lower their overall risk by investing in a variety of financial assets (also known as diversifying).
  • Financial markets adjust to developments reported in the news.
  • The prices of financial assets are affected by interest rates, as well as by changes in domestic and international economic conditions, monetary policies, and fiscal policies.
  • Investors should be aware that bias or simple human nature could negatively affect their investment strategy. These behaviors can include investing in something because others are doing it rather than researching the investment independently or holding on to an investment for too long due to overestimating its value and wanting to avoid potential loss.
  • The Securities and Exchange Commission (SEC), the Federal Reserve, and other government agencies regulate financial markets.

Launch

This is the first introduction to the topic. It’s meant to get students thinking and asking questions. Before you dive into the outline and requirements for the final project, have the class watch How to Begin Investing. Then facilitate an open discussion with your students based on the following questions:

  • What is financial investing?
  • What is the real return on a financial investment?
  • List the types of taxes that can vary on investments.
  • Do you have to pay taxes on gains?
  • Who determines the prices of financial assets?
  • What is the correlation between risk and price?
  • What is financial diversification?
  • What are interest rates, and how do they affect financial investments?
  • Who regulates financial markets?

Pre-Assessment

To gauge students’ baseline understanding of the topics outlined in this course’s goals and outcomes––and to serve as a benchmark for your lesson plans––have students complete this question-based activity on their own. This activity shouldn’t be graded.

Download the Worksheet
Get the Financial Investing Pre-Assessment Worksheet PDF.

Final Project

Develop a diversified portfolio with at least eight holdings and be able to explain why you selected each holding as a part of your portfolio. Use Morningstar research and articles to do this. Please refer to Morningstar’s Guide to Life-Stage Investing as a starting point along with all the resources provided in the Checks for Understanding below.

Download the Worksheet
Get the Financial Investing Final Project Worksheet PDF.

Checks for Understanding

To complete the final project (and the course itself), students must be able to answer these questions through personal research and any lessons provided in class. These questions are in order of how they should be researched and "checked" by the teacher/facilitator. We've provided articles as a starting point, but students can do additional research on these concepts as they see it.

  1. What are some investing strategies for investors that are early in their careers (sometimes called early-career accumulators)? How may a portfolio of a retiree differ from that of a young, single person?

    Resources:

  2. How do you calculate the real rate of return on a bond? What will happen to the price and rate of return on a bond if buyers believe that it has increased in risk?

    Resources:

  3. What impacts your overall return from a mutual fund, beyond market performance?

    Resources:

  4. Why is the expected rate of return on a “blue chip” stock likely to be lower than that of a start-up company?

    Resources:

  5. What does it mean when a financial advisor encourages their clients to diversify their portfolios?

    Resources:

  6. How can media coverage of a company’s profitability affect its price?

    Resource:

  7. How do rising and falling interest rates impact the return on financial assets?

    Resources:

  8. How can investors’ personal biases affect their potential earnings?

    Resource:

  9. What is the SEC? What is the Federal Reserve? What roles do both institutions play in regulating our financial markets?

    Resources:


About the Authors

Harron Young is a strategy analyst for Morningstar and a former third-grade math teacher with Teach for America. She has a master’s degree in business administration.
Jessica Gibson is an early career programs lead for Morningstar and former first- and second-grade teacher with Teach for America. She has a master’s degree in urban education, with a focus on administration and policy.

Contributors

Lead content strategist: Courey Gruszauskas
Editor: Amelia Buzzell



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