Lesson 8: Investment Simulator & The Power of Compound Interest
Students will be able to create their own investment portfolio on Stash101 and
analyze the impact of compound interest on their investments.
- Log in to Stash101
- Go to the purple “Settings” button on your Home page and click on “Investments”
- Toggle the pink slider from “DISABLED” to “ACTIVE”
- Give all students $10,000 to start investing
- Read through the lesson plan and instructional slides
Investment Simulator & Work Time (20-25 min)
Slide: Investment Simulator Intro, A
Ask: Do you know the most important factor in investing?
Have students share out a few ideas.
Slide: Investment Simulator Intro, B
A: Time. It’s important to think of your investments as something you won’t touch for a long time—because on average, the rate of return on your investments is 10% when you hold your investments and don’t day trade (or move your investments around every day).
Slide: Student Onboarding
Say: Today you’re going to get $10,000 to get started with investing! Okay, the $10,000 is simulated, but still.
Slide: Step 1: Log in
Say: Go to Stash101 and log in. Then scroll down past your checking and savings account and find the box that says “Portfolio Balance.” Click on the link that says “Manage” next to “Taxable Accounts.”
Slide: Step 2: Choose Your Investments
Say: Let’s watch the video of Janessa Boulay, the cofounder of Stash101, explaining how the Stash101 investment simulator works—and how to find investments.
Slide: While you’re in Stash101…
Say: While you’re in Stash101, spin the 101 Wheel!
Say: Now, go ahead and spend 10-15 minutes investing your $10,000 in the market, forex, or cryptocurrencies. Think about the diversification conversation we had in the last lesson and choose at least 3-7 different investments. You can also read the financial market news to guide your decisions. When you’re on the Investments page, click the newspaper icon that’s to the left of the bell in the top navigation.
The Power of Compound Interest (20 min)
Slide: “Compound interest is the eighth wonder…”
Ask: Can someone please read this quote?
Have someone read aloud.
Ask: What does this quote mean to you?
Have students share out a few responses. If they did the pre-work, they should know the answer to this question. If not, give them a few minutes to skim through the pre-work article: Still the 8th Wonder of the World
Slide: Compounding is any return…..
Read the slide verbatim.
Slide: So how does compounding work?
Read the slide verbatim.
Slide: Balance after 1 year of earning interest
Say: If you deposit $100 in an account that has a 10% interest rate, after one year, you’ll have $110.
Slide: Balance after 1 year of earning interest | Balance after 2 years of earning interest
Say: Then, if your interest rate is still 10% and your base after one year is now $110, you’ll have $121 after two years because of the power of compounding (when you only put in $100 to start!).
That’s because during that second year, you’re earning 10% interest on $110, not on $100. You’re essentially making money on the money you put into your account, just by letting the money sit there. In this example, your money has yielded a 10% interest rate (like the stock market average over time).
Slide: Imagine that you….
Say: This is a recap of what we just talked about to reiterate the concept.
Slide: Balance after 4 years of earning interest
Say: So after four years, the starting balance that the 10% interest is calculated on continues to go up. It might not seem like a lot of money, but if you allow this to continue compounding…let’s see what happens.
Slide: After 10 years…
Say: After 10 years, your $100 would have grown to $259.37—and that’s if you do nothing! Now if you just left that $100 in a low-interest savings account, it would probably be around $101 after 10 years. But if you were to invest it in different investment vehicles that on average produce a higher rate of return, you could grow your money!
Slide: What it looks like to start investing at age 25 vs 35…
Say: So with this concept in mind, here’s a graph of the differences if you started investing at the age of 25 versus 35. See the ending amount differences? And notice that while the amount invested only varies by about $6000, the future value varies by more than $35,000! That’s compounding.
Slide: See how much more someone can save by 65 if they start at 25 vs 35.
Say: So if you start with $100 and put away as little as $50 each month, with an annual return of 5.25% (which is less than the stock market’s average), the person who starts 10 years earlier will have more than tripled their money.
Slide: The sooner your start….
Say: Starting early puts you at a huge advantage because of the power of compounding!
Practice, Reflect, Homework (5-10 min)
Slide: How much would you have…
Say: Let’s say you put your $10,000 from today into the market as your base starting amount. In the previous example, by comparison, the base was $100—and you can start with as little as $5 on different real-world investing apps, like Stash.
Now let’s say for the sake of a round number that you’re making about $100,000 per year and contribute about 10% of that per month to your investments; that would be about $600 additional per month. (And if you’re using the 20/50/30 rule, you’d have another $600 or so per month to save or invest, so let’s say you put that toward a separate emergency fund not used in this example.) If you were to retire at 65, let’s see how much money you would have if the stock market averages a 5% or 10% return.
(If time allows, have students go to this link individually—otherwise, do the calculations in front of them): https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
If students calculate individually, have them share out their results based on a 5% and 10% return.
Say: There is a common phrase: “Time in the market, not timing the market.” Does anyone have any idea what that means?
Have students share out ideas.
A: Many people are afraid of getting started in the market—or they want to time the market to get the biggest return. However, this often means that money that could be earning compound interest is just sitting somewhere, waiting to be invested. That being said, getting started early—in other words, getting started now!—is essential to get the greatest returns from compounding over time.
Another big mistake people make is pulling out of the market when times get tough. But generally, instead of trying to time the market perfectly, the best approach is to keep your money in the market for a long time.
Say: Over the next two sessions, every time you receive a paycheck, I want you to pay yourself first, which means putting 10% of your 20% savings allocation into your investment portfolio. You can do that by scrolling down and clicking on the little green + in your investments.
Additionally, start researching which financial services companies or apps you might want to use to start investing. See what they offer and what aligns best with your needs.
Also, get some practice investing with the Stash101 Fantasy Investing game. You can download it for free in the App store or Google Play store. It doesn’t cost anything to play, and you can win cash prizes.
Slide: Pre-work for next session
Say: Watch this video before the next session.
Why talking to your friends can help you save money: https://www.ted.com/talks/wendy_de_la_rosa_why_talking_to_your_friends_can_help_you_save_money
Display Takeaway slide.