Stock Market Game Week in Review

The StockMarket Game is a curriculum-based teaching tool that allowsstudents to invest a hypothetical $100,000 online stock portfolio tolearn about long-term saving and investing.

Like Jason in the Friday the 13th movies, or Rasputin, or StevenSeagal, 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 Dowfinished down337 points. That bovine is a glutton for punishment.

Citibank ( C) and the Royal Bank of Scotland ( RBS) announced layoffs, and the automakers continued to teeter on the brink. Economistsare worried that cuts in consumer spending and joblosses will create a feedback loop that drives the economy down evenfurther. 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. TheTARP is the largest government expenditure since World War II.( CNBC.com has an educational slideshow on large federal outlays.)

So what do you teach your students in this whipsawing market? It's a goodtime to talk about asset classes and risk tolerance.

Lastweek, we discussed bonds and how they are saferthan stocks. Mutual funds are also safer than stocks, and fixed-incomemutual funds, which include only bonds, are safer than stocks as well.

Stocks and mutual funds are available for everyone in the Stock MarketGame. Bonds may be an investment option for SMG students depending onwhat state you live in. You can check with your local coordinator tosee if your program offers them.

Stocks, bonds and mutual funds are each an "asset class." As mentionedabove, different asset classes involve varying degrees of risk. Adiversified portfolio should contain all three asset classes, butshould be weighted based on a person's age, time horizon and risktolerance, which is essentially a gauge of how much risk one cancomfortably live with. Some people can handle a lot of risk and neverlose 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 theirprincipal, even if it's only on paper (i.e., an unrealized loss), isunacceptable to them.

Generally, if you're young and investing for retirement you should bemostly invested in stocks, because you have a long time horizon.Risk-averse investors can mitigate some of their worry by investing ina growth mutual fund, which makes them automatically diversified. Asyou get older, you should be switching asset classes, and yourportfolio should increasingly be filled with bonds or fixed incomemutual funds. When you retire, you should own very little stock,because your time horizon is now very short. Most retirees live offthe interest from their fixed income investments. So, the general ruleis that people should become more and more risk averse as they getolder.

In the publications section of the Teacher SupportCenter, the "Beyond the Market" guidebook includes a lesson planentitled "Investor's Menu," which can help teach students about assetclasses. Also in the Teacher Support Center, the SMG has a core lessonon risk, not surprisingly titled, "What is Risk?" Please take a look.

To learn more about The Stock Market Game, visit www.stockmarketgame.org.

RealMoney Barometer Poll
1 What would best describe your stance heading into the coming week of trading?
Bullish
Bearish
Neutral
2 Which of these sectors do you think is set to move up in the coming week?
3 Which of these sectors do you think is set to move down in the coming week?

View the results without voting

This article was written by a staff member of The Stock Market Game.

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