I wanted to share the investing lesson that I used today with my high school seniors.  We had played the retro investing game Stocks and Bonds on Tuesday which provided a sense of the emotions that often come with investing.

We used the first ten minutes of class to reflect on the lessons from the game and then had a ten minute class discussion.  Among the insights they gained:  importance of diversification, “the roller coaster ride” of investing, dividends as an income source, the futility of predicting the direction of the market and the relationship between risk and return.  It was great to see that a fun game that engaged all students also taught them such valuable lessons.

Given that I only had about 70 minutes, at this point, for a topic (investing) that could span a semester, I looked for inspiration last week when I stumbled across this recent CNBC clip of Warren Buffett giving investment advice to Lebron James.  Let me tell you the reasons that I love this clip:

  • It’s less than 3 minutes long (and if you decide not to listen to Warren Buffett describing how Lebron James dunked on him then it would only be 2 minutes!).
  • Buffett hits on three themes:  Invest at a young age…using index funds that you invest in over time…that are diversified.
  • He also mentions the concept of “cash reserve” which some of the more astute students picked up as an emergency fund.
  • Students loved Warren Buffett and his “aw-shucks” demeanor..when I told them he was one of the three richest men in the world they were even more impressed.

Using those three themes as a centerpiece, I had the students complete these activities from the NGPF Activity Bank for the remainder of class to deepen their understanding of these three concepts:

I ended class with a question about how students would think about splitting their investments between stocks and bonds for their retirement account (we had a conversation about 401(k) plans which would likely be their first opportunity to invest.  The answers ranged from 10% stocks/90% bonds to 100% stocks/0% bonds.    We discussed the importance of time horizon, risk tolerance (here’s a game the students love to play on this topic) and investing goals in coming up with the right asset allocation.  I wish I had this chart handy to show that the longer your time horizon, the less risk of loss (at least based on historical data dating back to the 1800s).  We also discussed one rule of thumb:  investing your age in bonds (so a 20 year old would invest 20% of their assets in bonds) and why it makes sense.