Investment Risk:
GRADE
11
How Much Can You Handle?
In this lesson, students compare levels of risk in various saving and investment vehicles and self-reflect on
their own risk tolerance.
Curriculum
Expectations
Subject
HIR3C – Managing Personal and Family Resources
HIP3E – Managing Personal Resources
Suggested Timing
70 minutes
Financial Literacy
Objectives
At the end of this lesson, students will:
• describe government regulations and policies for
saving and investments (e.g., CDIC);
• compare various savings and investment vehicles
and strategies;
• analyze the relationship between risk and reward as it
relates to savings and investments;
• identify age-appropriate, short-term savings goals.
Social Science and Humanities, Grades 11 and 12 (2000)
Managing Personal and Family Resources (HIR3C)
Personal and Social Responsibilities
• Demonstrate an understanding of the money-management techniques required for
independent living
Managing Personal Resources (HIP3E)
Social Structures
• Identify the types of financial institutions available in the community (e.g., banks,
credit unions, finance companies, trust companies) and the services available at
those institutions.
• Describe different types of personal bank accounts and the advantages of each.
Assessment
Collect: Investment Breakdown homework activity (Appendix E).
PAGE 1
Investment Risk: How Much Can You Handle?
GRADE 11
What You Need
•
•
•
•
Minds On
Draw a large representation of a pyramid on the blackboard. Title it, “The Risk
Pyramid.” Divide the pyramid into three horizontal segments from top to bottom.
Label the top third “High Risk”, the middle third “Medium Risk” and the bottom third
“Low Risk”. (See Appendix G for an example.)
Chalk/chalkboard
Masking tape
Projector
Appendices A-F
Tape the images of various extreme sports included in Appendix A in random order
to the left of the pyramid. Tape or write the various investment options (e.g., cash,
savings, stocks) in random order to the right side of the pyramid (Appendix B).
Draw students’ attention to the images of individuals participating in extreme sports.
Point out the image of the free solo climber and explain that this is a type of rock
climbing in which individuals climb alone and without ropes of any kind.
Discuss the reasons why a person would or would not want to participate in this
kind of sport (risk and reward) and ask students what people do to prepare for
high-risk activities.
Stick the “Free Solo Climb” photo (Appendix A) near the top of the pyramid and
emphasize that this is one of the riskiest activities a person could undertake.
Encourage a similar discussion about the other sports photos and discuss the level of
risk that students think is associated with each. According to class agreement, place
the images of each sport in descending order of risk on the left side of the pyramid. Explain that there are some people who are comfortable taking on high levels of risk and
that they are willing to tolerate this kind of uncertainty for a perceived “payoff”. Others
are more moderate and feel more comfortable in situations in which the risk is lower.
The same is true of investing money. There are those who are comfortable taking
on higher levels of risk while others prefer or require the comfort of investments that
have low levels of risk. Explain that today’s lesson will help students understand the
range of risks across the spectrum of investments available in Canada.
Context for Learning
Bill Fold is a character who is constantly getting himself into financial scrapes. Use
the scenario below to provide students with a context for learning.
Bill Fold has been working part-time and has saved $5,000 for school. To optimize
his savings, should he invest the money? If so, in which savings or investment vehicle
and at what level of risk?
PAGE 2
Investment Risk: How Much Can You Handle?
Action
GRADE 11
Hand out the How Risky Am I? quiz (Appendix C). Have each student fill it out and
write down their Risk Profile Number.
Ask students whether or not they see themselves as similar to their risk profile
numbers. Pair students according to similar Risk Profile Numbers.
Provide each student with an “Investment Breakdown” worksheet (Appendix E).
Review the first example (Cash) and tape the “Cash” label near the bottom of the
pyramid (on the opposite side of the sports images). Debate whether or not keeping
hard cash at home is actually a risk-free endeavour. Have students record the level of
risk in the first row and final column of the Investment Breakdown worksheet.
Next, help students understand collectible items and then saving accounts. Distribute
the How are savings and investments protected? handout (Appendix D) and
familiarize students with the features of Canadian deposit insurance coverage. As a
class, decide the level of risk of a savings account (low, medium, high). Have students
record their responses on the Investment Breakdown worksheet and stick the
“Savings Account” label to the appropriate spot on the pyramid.
Move through the other investment vehicles listed in Appendix D, describing each
investment in clear and simple terms, and by highlighting and recording the level of
risk for each. Take time to explain diversification and the importance of this tactic in
mitigating investment risk. As each investment type is discussed, have a student come
to the front and stick the investment label at the appropriate level of risk on the pyramid. (Note: It will be important to teach students what the term “liquidity” means in advance
of using Appendix D. See Appendix F for suggested answers for levels of risk.)
Consolidation/
Debrief
After completing the investment pyramid with the class, remove all of the investment
labels and have students put their Investment Breakdown worksheet away
(Appendix D).
Distribute the Risk Pyramid worksheet (Appendix G). Have students review the various
investment types taught in the lesson by recording the investment types listed at the
bottom of the page on the appropriate area of the risk pyramid. Encourage students
to describe and quiz their partner on the pros and cons of each investment type.
As a class, discuss the following:
1.How does the CDIC protect Canadian investors?
2.What are the potential benefits of high-risk investments; low-risk investments?
3.What kinds of investments are right for you at this stage in your life? Why?
4.What can you do to lessen investment risk?
Homework
Ask students to research an additional investment vehicle and add the information to
their Investment Breakdown worksheet. PAGE 3
APPENDIX A
Investment Risk: How Much Can You Handle?
GRADE 11
Risk Spectrum Photos
#
Free Solo Climb
Surfing
Walking to school
Skydiving
PAGE 4
APPENDIX B
Investment Risk: How Much Can You Handle?
GRADE 11
Investment Options Labels
#
Cash
Gold
TFSA
Savings Account
GIC / Term Deposit
Government Bonds
Stocks
Real Estate
Collectible Items
PAGE 5
APPENDIX C
Investment Risk: How Much Can You Handle?
GRADE 11
How Risky Am I?
Choose the answers that best describe you.
Then, add up your answers based on the following values:
a = 1, b = 2, c = 3, d = 4
1.
You are on a TV game show and can choose only one of the following options. Which would you take?
a. $1,000 in cash.
b. A 50% chance at $5,000.
c. A 25% chance at $10,000.
d. A 5% chance at $100,000.
2.You have just finished saving for a “once-in-a-lifetime” vacation. Two weeks before you plan to leave, you
lose your job. You would:
a. Cancel the vacation.
b. Take a more modest vacation.
c. Proceed as scheduled, reasoning that you need the time to prepare for a job search.
d. Extend your vacation, reasoning that it may be your last chance to do anything like this.
3.Think of the word “risk”. Which one of the following words first comes to mind?
a. Threat
b. Loss
c. Uncertainty
d. Opportunity
4.Given the best- and worst-case scenarios of the four investment choices below, which would you prefer?
a. $250 gain best case; $0 gain/loss worst case
b. $750 gain best case; $200 loss worst case
c. $2,800 gain best case; $800 loss worst case
d. $5,000 gain best case; $2,500 loss worst case
5.Your trusted friend has invented something top secret. If his invention can pass safety inspection next week,
any money invested now will earn 100 times the investment. If it does not pass, the entire investment is
worthless. Your friend estimates a 20% chance of success. If you had the money, how much would you invest?
a. Nothing
b. One month’s salary
c. Two month’s salary
d. Six month’s salary
Total score: Risk profile number
(5 – 9 = low risk, 10 – 15 = medium risk, 16 – 20 = high risk)
PAGE 6
APPENDIX D
Investment Risk: How Much Can You Handle?
GRADE 11
How are savings and
investments protected?
What is the CDIC?
The Canadian Deposit Insurance Corporation (CIDC) protects the money
you deposit or invest with Canadian financial institutions in the event that
the institution were to go bankrupt. The CDIC is not a bank or a private
insurance company.
If your financial institution is a CDIC member and it does go bankrupt, you
can receive up to $100,000 of your principal and interest on any investments.
If the institution is not a CDIC member, you may lose everything!
Are all accounts with member institutions covered? NO!
Accounts and Products Covered by the CDIC (only in Canadian $):
• Savings and chequing accounts
• GICs/Term Deposits with an original term to maturity of 5 years or less
• Money orders, certified cheques, traveller’s cheques, and bank drafts issued by CDIC members
Accounts and Products Not Covered by the CDIC:
• Stocks and mutual funds
• GICs/Term deposits with an original term to maturity of more than 5 years
• Bonds
• Treasury bills
What is the CIPF?
The Canadian Investor Protection Fund (CIPF) was established by the
investment industry to ensure that client assets are protected if they were to go
bankrupt. CIPF is not a government organization. If your investment dealer is a
CIPF member and it does go bankrupt, you would be eligible for up to $1,000,000 in coverage.
CIPF does not cover losses from:
• Market fluctuations
• The bankruptcy of an issuer of a security or deposit instrument held in your account,
no matter how drastic or unfortunate
PAGE 7
APPENDIX E
Investment Risk: How Much Can You Handle?
GRADE 11
Investment Breakdown
Investment
Description
Liquidity*
Benefits
Drawbacks
Risk
(hi-med-low)
Cash
Cold hard cash. Not in any bank. In a safe,
under your mattress, etc.
High
(hi-med-low)
• No risk of
bank failure.
• Can get
stolen.
• Likely to retain
value.
Collectible
Items
Sports cards, postage stamps, comic
books, etc.
Medium
Depends on
item
• Items can
appreciate
greatly in value.
• Items can
depreciate.
• Items can
get damaged
or stolen (may
need insurance).
• Depends
entirely on
market supply/
demand for
specific items.
GIC
(Guaranteed
Investment
Certificate) /
TD (Term
Deposit)
Both investments offer guaranteed returns
to investors, although investors cannot
touch their money until the agreed-upon
date. GICs typically offer a longer time
period than TDs, as well as larger returns.
Medium
Depends on
length of
investment
and penalties
for early
withdrawal.
• Guaranteed
return on
investment
(rates of return
likely less
than riskier
investments).
• Insured by
CDIC.
• May need to
take out money
earlier than
agreement
states; you can
face severe
penalties for
this.
Gold
In the form of gold bars or gold coins.
Depends on the supply/demand of gold
markets.
High
• Can greatly
appreciate in
value.
• Gold market
can drop.
Government
Bonds
When you buy a government bond, you are
basically lending money to the government.
The government, in turn, guarantees to
pay interest while you hold the bond and
pay back the principal at a later date
(“maturity”).
High
• Safe return
on investment
(though rates
of return likely
less than
some riskier
investments).
• No protection
from effects of
inflation.
(Canada
Savings Bonds)
Government
bonds are
typically
cashable
before maturity
without penalty.
• Guaranteed
by government.
Real Estate
Houses, condos, etc. The value of these
investments depends entirely on the
supply/demand of the real estate market in
the area where the properties are located.
Low
It takes time to
convert a house
into cash.
• Property
can greatly
appreciate in
value in a “hot”
real estate
market.
• Real estate
market can
drop.
• Can earn
revenue from
renting out
properties.
• “Carrying
costs” (property
tax, mortgage,
etc.).
• Potential
damage caused
by renters.
PAGE 8
APPENDIX E
Investment Risk: How Much Can You Handle?
GRADE 11
Investment Breakdown
Investment
Description
Liquidity*
Benefits
Drawbacks
Risk
(hi-med-low)
Stocks
Shares of publicly-owned companies.
Investors can make money by selling shares
at a profit and, in some cases, receiving
dividends (sharing of company’s profit)
from their stock. The value of stocks is
entirely dependent on supply/demand
by other investors. The stock market is
possibly the most volatile (up and down)
market there is.
High
Registered
Retirement
Savings Plan**
(RRSP)
Can contain various kinds of investments
(stocks, mutual funds, GICs, etc.) for which
investment earnings are untaxed. There is
an annual limit as to how much you can
contribute to your RRSP.
Registered
Education
Savings Plan**
(RESP)
Can contain various kinds of investments
(stocks, mutual funds, GICs, etc.) up to
$50,000 per student.
(hi-med-low)
• Potential to
make a lot of
money very
quickly.
• Stock market
can drop.
Depends on
assets within
RRSP.
• Tax-deferred
income.
• Tax paid
when income
received.
Depends on
assets within
RESP.
• Tax-deferred
income while
money grows in
the RESP.
• Tax paid
when income
received.
Can be less
liquid if it’s
a failing
company, poor
investment, etc.
• Federal
government
pays 20% on
every dollar
contributed up
to $2,500/year.
Savings
Account
Money being kept in a bank account.
High
• Insured up to
$100,000 by
CDIC.
• Investment
income from
interest is taxed.
• Comparatively
low interest.
Tax-Free
Savings
Account**
(TFSA)
Can contain various kinds of investments
(stocks, mutual funds, GICs, etc.) for which
investment earnings are untaxed. You can
deposit up to $5,000 per year in a TFSA.
Depends on
assets within
TFSA.
• “Tax shelter”
(tax-free
investment
income).
• Comparatively
low interest.
*Liquidity is an asset’s ability to be sold without causing a significant movement in the price and with minimum loss of value.
**Vehicles that can hold cash and other investments.
Homework Assignment: Add one more type of investment and fill out the chart with the
appropriate information.
PAGE 9
APPENDIX F
Investment Risk: How Much Can You Handle?
GRADE 11
Teacher’s Notes
Collectible items
high risk (no guarantee that market will pay as much as you did)
GIC
low risk
Gold
medium to high risk (depending on the market cycle)
Government bonds
low risk
Real estate
medium risk
RRSP
depends on assets within RRSP
RESP
depends on assets within RESP
Savings account
low risk
TFSA
depends on assets within TFSA
Stocks
medium-high risk (depending on investments and market cycle)
PAGE 10
APPENDIX G
Investment Risk: How Much Can You Handle?
GRADE 11
The Risk Pyramid
High Risk
Medium Risk
Low Risk
Cash
Stocks
Gold
RRSP
Savings Account
Government Bonds
Collectibles
GIC/Term Deposit
Real Estate
TFSA
PAGE 11