Takeaways from Our Interactive Portfolios Investment Simulation Game
How we're helping teachers help students understand the power of investing.
Consider these two questions:
What aspect of financial education has the greatest impact on students' future financial well-being?
What aspect of financial education are teachers least comfortable teaching?
The answer to both questions is: investing.
Other aspects of financial education (budgeting, managing debt, etc.) are important, but they are easier to understand and easier to teach.
That said, no aspect of financial education has the transformative power of investing. The difference between understanding and not understanding investing can be measured in the hundreds of thousands of dollars.
Literally life changing.
And it’s not that complicated.
Interactive Portfolios Investment Simulation Game
Our high school programs are designed to make it easy for teachers to teach students about investing—in a highly engaging way.
As a follow-up to our interactive Investment Roulette game (see our post Takeaways from Our Interactive Investment Roulette Game), we are now offering an interactive version of our Portfolios Investment Simulation Game. It’s practice reps for investing.
Teachers divide a class into four teams and designate a captain for each team. The program does the rest.
If you know any teachers who would like access to the program, please have them contact us. We’d like to impact as many students as possible.
One thing we provide the students and teachers with is a PDF with takeaways from the program. We thought it might be a good idea to reproduce that as this week’s post.
The Payoff
Few things will have a greater impact on your life than learning and understanding long-term investing. It’s, quite literally, life changing.
The Goal of Investing
Investing involves putting money into a portfolio and growing it over time so you can use it at a later date to fund retirement or other investment goals.
Types of Investments
The major investment asset classes include Stocks, Bonds, and Short-term Investments (often called Cash).
There are other types of investments, but the Portfolios game focuses on the three major asset classes.
Long-term Compounding Rate
An investment portfolio will grow over time through Compounding. Compounding is the secret to investing. It is exponential growth—your money going viral.
Historically, the long-term compounding rates for the major asset classes are:
Stocks: 10%
Bonds: 5%
Cash: 3%
These are long-term averages, and actual returns can vary, especially over shorter-term time periods.
Short-term Volatility
Investment returns can vary significantly in the short term. This is especially true for stocks.
Historically, stocks have had negative returns approximately 25% of the time over any one-year period.
However, since stocks make money far more often than they lose money, they will recover these losses over time.
The stock market (measured by the S&P 500 Index) has not had a 15-year or longer period over which it has lost money.
The stock market has recovered from crashes and other sell-offs and gone on to set new record highs 100% of the time.
Risk
Stocks are the most risky asset over short-term time periods because they have the potential to go down in value. Short-term investments (like money market funds) are the least risky asset over short-term time periods because they are designed to not lose money.
Stocks are the least risky asset over long-term time periods because of their superior long-term compounding rate. Short-term investments are the most risky asset over long-term time periods because of their low long-term compounding rate.
Asset Allocation
Investors typically mix different types of assets in a portfolio. This is called Asset Allocation. It is the primary way you set your investment strategy.
Asset Allocation has a far greater impact on how much money you make than individual security selection.
The goal is to achieve the highest compounding rate possible for your investment timeframe.
Long-term investors should have a high allocation to stocks due to the superior long-term compounding rate.
Short-term investors should have a low allocation to stocks due to the high short-term volatility.
Investors should monitor and adjust their asset allocation over time.
Practice Reps for Investing
The Portfolios game is practice reps for investing. When teams buy and sell, they are setting their asset allocation. A higher allocation to stocks is generally the best strategy in the game.
Again, if you know any teachers who might have interest in the program, have them contact us.
All areas of financial education are important, but investing is the concept that can have the biggest impact on students’ future financial well-being. Unfortunately, it’s the most challenging aspect of financial education to teach, and most resources do it poorly, often teaching the wrong things.
We’re doing what we can to help teachers make a meaningful difference in their students’ lives in the right way.
Best regards,
Stuart & Sharon