Investors Discuss with your group: If you had enough money to maintain your lifestyle, would you still go to work? Why/Why not? With your group, brainstorm some ideas of how to get money without having to go to work everyday. Activity One - Vocabulary Work with your group and match the terms to the definitions. Term Definition Investment Vehicles 1. An area of the economy in which businesses share the same or a related product or service. Industry 2. The ability to turn an asset in to cash quickly. Sometimes known as "marketability". Sector 3. Generally speaking, borrowing money (capital) in order to increase return of investment. Asset Class 4. The chance that an investment's actual return will be different than expected (especially negative). Risk 5. Giving funds to another party for safe-keeping (especially a bank). Liquidity 6. Very general term. Any method you can use to invest. ROI (Return on Investment) 7. Removing funds from an account, plan, pension or trust. Leverage 8. A category used to describe a company's main business activity. Usually the largest source of a company's revenues. Eg, fast-food/manufacturing. Deposit 9. This shows how profitable an investment is. Usually a percentage or a ratio Withdrawal 10. Different forms of investment, especially stocks, bonds and cash. Activity Two – Investment Vehicles Look at the different investment vehicles and their descriptions and features. Work as a group and try to match them up. Activity Three – Role Play In this role play you will be either an investor or a broker. If you are an investor, you should try to invest your money in a way that will protect your money, but also make it grow. The different brokers sell different investments, so shop around to find the ones you want. If you are a broker, you should be trying to match the investors with a suitable investment vehicle. Remember – the more they invest with you, the more money you can make! Investment Description Main Features vehicles A pool of money collected from many -Gives small investors access Mutual Funds investors. Operated by money managers to a diverse range of products. (Managed who invest the funds according to a -Minimum investment and Funds) strategy. regular contributions. A type of security that shows ownership -The foundation of most other in a corporation and means you own part investment vehicles. Stocks of the corporation's assets and earnings. -Historically have performed (shares) better than most other investments. An aggressively managed fund using -Illiquid (minimum investment advanced strategies to minimize risk and of 1 year) Hedge Fund maximize returns. Like mutual funds for -Investors must be accredited the super-rich. ($1 million net worth, large annual salary) A fixed-income security, where investors -Different lengths of time from loan money to corporations or the 90 days to 30 years. Bonds government for a fixed amount of time. -One of the main three asset classes with stocks and cash. Investors deposit funds into an account -Very secure investment, but which generates interest either at a fixed typically low returns. Cash or variable (changing) rate. -Sometimes cannot access the funds for a period of time (called a term deposit). Similar to a mutual fund, these funds are -Designed for stable growth. run by a company for their employees. -Very long term. Pension They provide money for employees when Funds they retire. A security that sells on the stock market, -Very liquid compared to Real Estate but allows investors to invest in real normal real-estate investment. Investment estate. Sometimes run as a mutual fund. -Revenue often comes from Trusts (REITs) rent. Investor 1 You are a single mother/father with 2 children. You have a steady job with a good income, but you are also paying your mortgage. However, you have saved $2500 that you want to invest in stocks. You can also deposit $100/month. You don’t have a lot of time to research the market, so you want a low maintenance investment with fairly low risk. Broker Name Investment Type Amount Invested Investor 2 You are a university student who has just turned 21. For your birthday, your parents have given you $5000 for you to invest. You’ve heard many people have made a lot of money in the stock market so you are looking for something that will give you a high ROI. You’ve read a bit about investing and are hoping to make some easy money. Broker Name Investment Type Amount Invested Investor 3 You are 45 years old, married with 2 children who are nearly finished high school. You have a good job and have invested regularly in stocks for the last 20 years. You have just liquidized some stocks and want to put the money into a different vehicle. You are willing to take a few risks, but want to balance your different investments. You have $15,000 to invest. Talk to some different brokers and find some investments that sound like they would suit you. Broker Name Investment Type Amount Invested Investor 4 You are an entrepreneur in your mid 30’s. You own a very successful business which has made you very rich, with a net worth of over $1.2 million. Your income is about $125,000/year. Talk to the different brokers and use your extensive investment experience to find some investments that have high ROI with moderate risk. Broker Name Investment Type Amount Invested Investor 5 You are in your late 40’s and have worked hard at your job all your life. Recently you have been thinking about retirement and realize that you might not have enough money. Your financial advisor suggested you invest in the stock market, though you feel nervous about the idea. You have kept your money in the bank, but the interest rate on your account wasn’t high enough. You have saved $50,000 which you need to invest to make money in the next 15 years or so. Broker Name Investment Type Amount Invested Investor 6 You are in your mid 30’s and have some investing experience, though mostly in the real-estate market. You have quite a bit of money to invest, but traditional real-estate is not liquid enough, as you might need the cash in the near future. You have $75,000 to invest so talk to some brokers and see what you think would be the best place for your money. Broker Name Investment Type Amount Invested Broker 1 You are a broker for a mutual fund management group. Your group offers the following funds: Balanced Fund: A mix of cash (50%), blue chip stocks (30%) and mining stocks (20%). The fund has had returns of 6.5% over the last 5 years, though last year the performance was only 1.5%. Stock Fund: This fund invests solely in stocks, the majority in blue chips (55%) with the rest in industrials (30%) and the rest in the mining sector (15%). It has been running for three years and has averaged 7.9% over that time. Last year it returned 11%. Growth Fund: This fund is aimed at producing maximum returns, though it comes with more risk. It invests only in S&P 500 companies which have maintained strong growth over long periods. This fund has been going for 3 years and has returned 12.3% on average. Lat year it returned 15%. All the funds require a minimum of $1000 investment, plus further investments of $100/month. Investor Name Investment Type Amount Invested Broker 2 You are a stock broker. Your main customers are small investors, usually investing less than $100,000 at a time. The stocks you recommend fall mainly into three categories: Blue Chip: Low risk stocks in big, stable companies. These stocks also generally have low, but steady returns. Medium Risk/Return: These stocks are in quite large companies, and can represent the best value. They fluctuate (change) more than blue chips but potential profits are higher too. High Risk/Return: These stocks have the highest potential for earnings. They have high potential for failure too, so invest with caution. All stocks need a minimum purchase of $500 worth of stock. Investor Name Investment Type Amount Invested Broker 3 You are a fixed interest securities representative. Your company offers 4.5% term deposits for 12 months. People deposit their money and then are unable to access it for 12 months. During this time it earns a fixed rate of 4.5%. Any amount can be invested. You also offer government bonds which offer 5% ROI and typically have a term of 12 months. Each bond costs $5000. Investor Name Investment Type Amount Invested Broker 4 Your company manages a pension fund. The fund has performed well over the last 10 years, averaging 6.3% and you expect that trend to continue. The fund has no minimum investment, but takes 4.5% of the clients monthly salary directly from their paycheck. Your company is also putting together several private investors to finance a hedge fund. It is expected to have a ROI of ~23% over 2 years and carries a moderate to high level of risk. To invest, people must be “accredited” (have a net worth over $1 million and a yearly income of more than $100,000). Investor Name Investment Type Amount Invested Broker 5 You are a manager of a Real Estate Investment Trust (REIT) which invests in property and collects money from rent. People can buy stocks in your fund, similar to a mutual fund. The minimum investment is $5000 with no monthly payments. For the last 5 years, returns have averaged 8%. Investor Name Investment Type Amount Invested Teachers Notes Lesson Focus: Language used when talking about investments Level: Advanced and above (business) Preparation: Photocopy page one and two so each student has one. Copy and cut up page three so that each group has a complete set. Copy and cut up the “Investors” and “Brokers” cards so that each student has one role card. This lesson is pretty heavy and requires some financial knowledge on the part of the teacher (though these notes provide examples of each term to help you describe them). Step Time Description 1 5-7 mins Introduce the topic and ask students to discuss the first couple of questions with their group. Monitor and assist as required. 2 10-12 Introduce Activity 1. Don’t expect the students to get all of these mins right! The answers are below. Go over the answers as a class. 3 10-15 Introduce activity 2. Each group should get a complete set of cards mins (cut up from page three) and they should work together to match the terms with the descriptions and main features. Again, don’t expect them to get too many right, though financial people should get some. 4 15-20 Distribute the role cards for activity three so that half the class are mins investors and the other half are brokers. It doesn’t matter if there are more than one type of broker/investor. The investors try to find the brokers and find out about the different investment choices they offer. I recommend having all the brokers sit in one area, so they are easier to find. As the students invest and sell investments, they should fill in the tables on their role card, like this: Broker/investor name Investment type Amount invested John Gordon Balanced fund 1000 plus 100/month 5 2-3 mins Ask the students what they invested in and the brokers how much money has been invested in their companies. Ask the investors why they chose those investments (financial restraints, high returns, etc). ANSWERS: Term Definition Investment Vehicles 6. Very general term. Any method you can use to invest. Eg: stocks, mutual funds, cash, bonds etc… Industry 8. A category used to describe a company's main business activity. Usually the largest source of a company's revenues. Eg, fast- food/manufacturing. Sector 1. An area of the economy in which businesses share the same or a related product or service. Eg: retail sector, mining sector Asset Class 10. Different forms of investment, especially stocks, bonds and cash. Much more specific than investment vehicles. Risk 4. The chance that an investment's actual return will be different than expected. Investments with high returns are generally high risk. Liquidity 2. The ability to turn an asset in to cash quickly. Sometimes known as "marketability". Real estate is not liquid (hard to sell a house) stocks are liquid as they are generally easy to sell. ROI (Return on 9. This shows how profitable an investment is. Usually a percentage or Investment) a ratio often given as an average of a number of years (like 5% over the last 3 years). Leverage 3. Generally speaking, borrowing money (capital) in order to increase return of investment. Eg: you have $10,000 and borrow $20,000 to buy more shares. Deposit 5. Giving funds to another party for safe-keeping (especially a bank). Withdrawal 7. Removing funds from an account, plan, pension or trust.