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My Five Cents: Why investing can be risky

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Woman holds hands out to catch falling money
My Five Cents: Why investing can be risky

SUBJECTS:  Economics, Maths

YEARS:  7–8, 9–10


Planning to get rich quick by investing one day?

Before you jump in, let Gen Fricker explain some of the risks involved with different types of investments.

Then test yourself with ASIC Moneysmart's "Things to think about" classroom exercises.


Things to think about

  1. 1.Brainstorm: (a) The purpose of investing (wealth preservation vs get rich quickly). (b) Goals you want to achieve in the next 5, 10, 20 years. List some ideas on how you plan, budget and save to achieve your goals.
  2. 2.List the terms that stand out to you as you watch the video. For example: invest, shares, returns, risk, reward, profit, wages, high interest, long-term growth, calculated risk, bankrupt. Investigate any terms that are unclear by searching the Moneysmart glossary page
  3. 3.

    Use the ASIC Moneysmart Savings goal calculator to complete the following exercises.

    Q1: Using the 'I want to save as much as possible' button, investigate the following investment options.

    (a) Investment option A: a savings account with a bank

    How much money will Lilia have if she starts with $1000 and earns 3% interest per year for 10 years? She has no regular savings.

    (b) Investment option B: shares

    How much money will Lilia have if she invests $1000 in shares for 10 years and earns 6.5% per year? She has no regular savings.

    Q2: Calculate how long it will take to double the money saved for each investment option. (Hint: if you take 72 and divide it by the interest rate you can earn, you'll get an estimate of the number of years it takes to double your money.)

    Q3: Decide which investment option is better by discussing the risks involved with each option.

    Q4: Use the following scenario when answering Question 3.

    'Gold Diggers' is a mining company in Western Australia. Their share price has increased by 30% in the past 5 years. Recently, they purchased a new gold mine but had to spend $100 million in fixes and upgrades. Due to the upgrades, the gold mining will only begin after 2 years. The managers decided not to pay earnings to shareholders (dividends). After this announcement, their share prices fall by 10%.

    Discuss the advantages and disadvantages of buying shares in 'Gold Diggers'. In your response, consider short term and long-term advantages and disadvantages. To research more about shares, go to: https://www.moneysmart.gov.au/investing/shares.


Teachers

ASIC Moneysmart Teaching:


Acknowledgements

The learning materials provided with this video were created by ASIC Moneysmart.


Production Date: 2019


Copyright

Metadata © Australian Broadcasting Corporation 2020 (except where otherwise indicated). Digital content © Australian Broadcasting Corporation (except where otherwise indicated). Video © Australian Broadcasting Corporation (except where otherwise indicated). All images copyright their respective owners. Text © Australian Broadcasting Corporation and ASIC.

Posted , updated