By: Laura Walton AFC®
I spent yesterday morning talking about investing with a high school Personal Finance class. This is a classroom that the TCI Foundation has been visiting for the past three years – this time was different.
Many teachers use The Stock Market Game and their teacher had received a grant to bring the investing tool into the classroom this semester. The Stock Market Game is a popular online tool that lets teams of students simulate investing in stocks and compete against other student teams nationally to see whose portfolio wins. Created by the SIFMA Foundation, a non-profit supported by broker-dealers, banks and asset managers, it targets grades 4-12 “preparing them for financially independent futures.”
It’s fun! The students like investing their $100,000. They learn about ticker symbols, how to read a stock table, and about the different stock exchanges. Their teacher works hard to engage them and, when we talked after class, we agreed that the Stock Market Game had made a difference in their level of interest and therefore understanding in the topics we covered. However, the question they couldn’t answer was “what is a mutual fund?”
The Foundation recommends investing in mutual funds rather than individual stocks so I had some explaining to do! But, I’ve got a lot of research on my side and some pretty big hitters as well. It’s easy to explain that buying a basket of stocks or bonds is less risky than hand-picking them but a mutual fund also makes it possible for an individual to own all 500 stocks represented by the S&P 500 for example. Investing in this kind of index mutual fund is the best of all worlds because it spreads risk over many stocks bought at a very low cost.
But, really, isn’t there a more sophisticated way to invest in the market? LaBron James, with $65M in annual earnings, was hoping to get just that kind of advice from Warren Buffett last year but here’s what Warren said, “Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund.” He went on to say about investing in general that “the simplest is the best.”
The teacher and I decided the Stock Market Game did its job – it got the students interested in the subject – we just needed to explain the benefits of using mutual funds over individual stocks. And, maybe we’ll get feedback like we got last time from one of the students, “I didn’t want to invest but now I do!”