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3.08 Start Investing

Last updated 2 months ago
27 questions
Note from the author:

QUESTION OF THE DAY: Over a recent 20 year period, what percent of pros investing in large companies "beat the market?"

Answer the question on the first slide in the space below. Then, compare your answer to the answer on the second slide. Finally, follow your teacher’s directions on how to answer the follow-up questions on the last slide.
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Over a recent 20 year period, what percent of pros investing in large companies "beat the market?"_______

INFOGRAPHIC: Tips for Beginner Investors

As you saw from the previous Question of the Day, professional investors rarely beat the market! So what can beginner investors do to maximize their return on investments? Review this infographic to learn about some recommended strategies for beginning investors. Then answer the questions.
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Review the section titled “Can You Pick Winning Stocks”. Why would it be risky to have your strategy be based only on picking individual stocks?

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Choose one of the Cognitive Biases listed that can contribute to making bad investing decisions. Describe a time when you’ve fallen victim to this Cognitive Bias (it doesn’t have to be related to investing).

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Use the section titled “Risk Tolerance” to answer these questions:

How can too little risk affect your investing experience?_______
How can too much risk affect your investing experience?_______
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The final section is titled “Remember, Good Investing Is Boring.” Explain what this means to you and whether this affects your enthusiasm for investing.

REFERENCE: Investment Risk Tolerance Quiz

Let’s take a closer look at risk tolerance. Answer the questions in this investment risk tolerance quiz and then calculate your total score. Then answer the questions below.
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What was your total score? What type of risk tolerance does this mean you might have?

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Do you agree with the results you got? Explain your answer.

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How might knowing your risk tolerance be beneficial to you as an investor?

ACTIVITY: INTERACTIVE: Invest with STAX!

In the previous infographic, you learned about some strategies you might want to use when investing. Let’s see how they play out in the investing simulation, STAX! Follow the directions on the worksheet to complete the activity.
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Take a screenshot of your portfolio at the end of the game and paste it in the show your work.

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How did you divide money between asset classes? Use your Investment Portfolio pie chart to complete the table below.

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Do you think you finished the game with a diversified portfolio? Why or why not?

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Describe your investment strategy as you played the game.
What was your plan when you first started playing? How did it change during the course of the game?
If you didn’t have a strategy, why not?

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Describe the various emotions you felt as you played the game. How did your emotions impact your decision-making? Provide specific examples.

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What strategy did the computer follow? Why do you think that strategy was so successful?

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Your friend brags, “It was easy to beat the computer in STAX. I made $50,000 more by picking individual stocks to buy and sell. Why buy an index fund, when I can actively trade and beat the market?” Your friend got lucky, but why might their strategy be risky?

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If you had the opportunity to play STAX a second time, what would be your strategy?

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You had seven different investment options in the game. The most diversified portfolio would include all of them. Would this diversified portfolio have the highest return? Why or why not?

ARTICLE: What Is a Brokerage Account and How Do I Open One?

Now that you have learned about and practiced implementing some of the investment strategies you can use, you might be wondering how you can actually start investing. In order to buy stocks, bonds, funds, and other investments on your own, you’ll need a brokerage account. Review the article to learn more about brokerage accounts and how to open one. Then answer the questions.
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In your own words, explain the difference in how a brokerage account functions compared to a normal bank account.

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Ava is a recent college graduate. She realized she has some extra money in her budget and would like a way to invest it while also having access to it should she need cash. Which type of investment account would be best?

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Remi contributes as much as he can to his employee-sponsored 401k and personal IRA. He would like to make more investments in individual companies to try and increase his long-term earnings. Which type of investment account would be best?

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Naomi would like to invest for retirement but doesn’t want to worry about paying taxes every year. Which type of investment account would be best?

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Ira is ready to take on some more risky investments and would like to start exploring options trading. Which type of investment account would be best?

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Describe how online brokerage accounts differ from managed brokerage accounts.

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Briefly explain what’s involved in the steps of opening a brokerage account:
  1. Apply:_______
  2. Initiate a deposit:_______
  3. Verify a transaction:_______
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What does it mean when someone says “Good investing is boring”?
  1. There should be little to no change in how your portfolio performs
  2. You should avoid talking to anyone about how your investments are performing
  3. You’re better off making long-term investments that don’t require day-to-day management
  4. You should avoid checking how your investments are doing for at least 10 years

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All of the following are recommended strategies for beginner investors EXCEPT…
  1. Try to pick winning stocks and beat the market
  2. Recognize cognitive biases that may be influencing your decisions
  3. Minimize expense ratios to cut back on costs
  4. Choose your investments based on your risk tolerance

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Which of the following is a characteristic of a brokerage account?
  1. Typically no capital gains tax
  2. Limits on how much you can invest
  3. No penalties for withdrawing your money
  4. Require a large amount of money to open an account