Personal Finance
Stock Market Game Week in Review
The Stock Market Game Program
11/16/08 - 11:45 AM EST
The Stock
Market Game is a curriculum-based teaching tool that allows
students to invest a hypothetical $100,000 online stock portfolio to
learn about long-term saving and investing.
Like Jason in the Friday the 13th movies, or Rasputin, or Steven
Seagal, this bear is hard to kill. After a strong late-day rally Thursday, the bear mauled a charging bull Friday morning, and the market continued its downward trend. But the bull mounted a counteroffensive Friday afternoon, only to be beaten down once again as the
Dow
finished down
337 points. That bovine is a glutton for punishment.
Citibank (C Quote) and the Royal Bank of Scotland(RBS Quote) announced layoffs, and the automakers continued to teeter on the brink. Economists
are worried that cuts in consumer spending and job
losses will create a feedback loop that drives the economy down even
further. But there are also some optimists out there. Let's hope the optimists are right.
Treasury Secretary Paulson announced Tuesday that the government would not be buying distressed assets under the Troubled Asset Relief Program (TARP, a.k.a. the Wall Street bailout/rescue) and would stick with injecting capital into banks. The
TARP is the largest government expenditure since World War II.
(CNBC.com has an educational slide
show on large federal outlays.)
So what do you teach your students in this whipsawing market? It's a good
time to talk about asset classes and risk tolerance.
Last
week, we discussed bonds and how they are safer
than stocks. Mutual funds are also safer than stocks, and fixed-income
mutual funds, which include only bonds, are safer than stocks as well.
Stocks and mutual funds are available for everyone in the Stock Market
Game. Bonds may be an investment option for SMG students depending on
what state you live in. You can check with your local coordinator to
see if your program offers them.
Stocks, bonds and mutual funds are each an "asset class." As mentioned
above, different asset classes involve varying degrees of risk. A
diversified portfolio should contain all three asset classes, but
should be weighted based on a person's age, time horizon and risk
tolerance, which is essentially a gauge of how much risk one can
comfortably live with. Some people can handle a lot of risk and never
lose sleep if their investments are down for the day, month or year.
Other people are very risk averse, and the idea of losing any of their
principal, even if it's only on paper (i.e., an unrealized loss), is
unacceptable to them.
Generally, if you're young and investing for retirement you should be
mostly invested in stocks, because you have a long time horizon.
Risk-averse investors can mitigate some of their worry by investing in
a growth mutual fund, which makes them automatically diversified. As
you get older, you should be switching asset classes, and your
portfolio should increasingly be filled with bonds or fixed income
mutual funds. When you retire, you should own very little stock,
because your time horizon is now very short. Most retirees live off
the interest from their fixed income investments. So, the general rule
is that people should become more and more risk averse as they get
older.
In the publications section of the Teacher Support
Center, the "Beyond the Market" guidebook includes a lesson plan
entitled "Investor's Menu," which can help teach students about asset
classes. Also in the Teacher Support Center, the SMG has a core lesson
on risk, not surprisingly titled, "What is Risk?" Please take a look.
To learn more about The Stock Market Game, visit www.stockmarketgame.org.
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