Better Than The Stock Market Game?

In January, I’ll be teaching a personal finance class at Singapore American School.

It’s an elective course to be comprised of keen 9th to 12th grade students.

I’m taking the course very seriously, and for that reason, I won’t be playing “the stock market game”.

As I mentioned in my previous post, I think the game has more drawbacks than benefits.

I don’t want to teach kids to celebrate their short term stock market gains based on a variety of virtual stocks they would pick. No matter what I say about how meaningless short term gains are, kids who play the stock market game, and win, are still going to celebrate.

And when they’re older, remembering how “talented” they were could manifest itself as a truly painful financial education if they choose to use that “skill” with real money.

In contrast, those who lose the stock market game based on choosing (what might be) sound blue chip businesses, could be turned off the strategy of prudence forever…believing that a “shoot from the hip” strategy produces more winners.

If there’s an upside to the stock market game, I don’t see it.

But instead of purely criticising, I’d like to offer an alternative—something I’ll be initiating next year.

When teaching personal finance, as with any subject, we have to make the activity as relevant as possible. Do we want to produce day traders, or do we want to teach kids how to invest?

If we want students to become prudent investors, we need to incorporate something real: a skill that they’ll be able to employ once they start working. We’re going to use fundraised proceeds, and we’ll invest those proceeds—for real. Creating a portfolio similar to that of an endowment fund, we’ll have roughly 40% of the portfolio allocated to bonds, and 60% allocated to equities.

Students will learn how to ensure the highest statistical chances of success, with low cost indexes. I won’t tell them that indexes offer the best odds; through a Socratic series questions as well as academic research activities and debates, they’ll discover that index funds give the best probabilities of stock and bond market success. I won’t have to tell them. Besides, brain based research suggest that kids learn better when they discover things for themselves.

When we get freshly fundraised money, my students will then have to determine exactly where the money should go. And they’ll make the transactions themselves. The money will be real; the brokerage account will be real.

Each year, the new batch of students will become the portfolio’s new stewards, and we’ll track the portfolio’s performance relative to a collection of actively managed balanced funds, since its inception (including all fees).

Our school has a multitude of clubs with philanthropic missions. These clubs donate money to carefully selected third world charities. And the investment account we create will donate 4% of its proceeds each year to a charity/club of the students’ choice.

What will my students learn?

  1. How to create responsible, low cost investment accounts
  2. How to make purchase and withdraw transactions
  3. How to track their performance, relative to a series of actively managed balanced funds
  4. How to determine worthy recipients for their philanthropy
  5. How to determine a sustainable withdrawal rate (roughly 4% per year) for the investment portfolio, ensuring the likelihood that it will never run out of money.
  6. The costs of transactions and taxes on invested money
  7. What percentage of bonds they would have in their personal investment account, based on their different stages of life, while being able to defend their decision based on a variety of probable outcomes.

Naturally, there are more important concepts to teach, of course, such as teaching kids to spend within their means. We’ll discuss spending, savings, taxes, credit cards, car purchases, home purchases and stock market history, among other things.

After I teach the investment part of the course, I think that my students will be far better equipped to make educated investment decisions, compared to students who play the stock market game.

To read more about my investment philosophy, you could order my book, Millionaire Teacher. The book promises to entertain, and teach—much the way I will when my class starts in January.

 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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11 Responses

  1. That sounds like a great class! The long-term approach sounds like a great way to get students interest in what actually happens in the real world.

    • Thanks Value Indexer:

      Yeah, I definitely want them thinking long term, because young investors won't be selling their stock market assets for a very long time. For that reason, they need to streamline costs, put the odds in their favor, and hope for bear markets while they accumulate assets, and bull markets once they're selling them (as retirees). Of course, nobody knows what the markets will do (or when) but a strategy like this will give the kids very good odds of success.

  2. I love your class agenda. I think your student will learn a lot about ultimate smart investment techniques to invest their money wisely. I also believe teaching these kids the right way to invest early in their lives is very important. Keep up the great works! Have you written a book yet on your investing ideas?

  3. Sounds awesome.

    Any room for a 30-something from Ottawa, Canada? 🙂

    "Students will learn how to ensure the highest statistical chances of success, with low cost indexes."

    I like the idea this is not a one-year event, rather the new batch of students will be the portfolio's new stewards. Nice stuff.

    I always look forward to your posts Andrew but in particular now, the portfolio ebbs and flows.

    Cheers,

    Mark

    • Thanks Mark!

      I only wish that I had more than a semester with these kids! The very first unit is starting like this:

      Name a job that you might end up doing. Let's research the salary, taxes, time off etc. Now where do you want to live? How much will rent cost there?

      Anyway, I am asking them to present something real: an estimate of what they will make and what "life" will cost them. They have to ensure that their numbers are backed up with substance. For example, they will need to check rental listings and show me a place they would move into; a car they would buy (and it's listing price) the starting salary, based on a primary interview with someone else starting out in that position. I'm very excited to make this all as real as possible.

  4. DIY Investor says:

    The students are very lucky to be taught the principles at a young age with a real life portfolio. It is difficult in the U.S. because the financial services industry has such a lock on the whole process not to mention the teacher's union.

  5. Be'en says:

    Brilliant!

  6. Still Learning says:

    Too few are benefitting. 🙂

  7. Barry says:

    How did this go?

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