Minds On
Growing money with money
Are you familiar with the terms "grow your money" or "investing"?
What do you think is the difference between saving money and investing?
Record your thoughts using a method of your choice.
Action
Investments
What is investing?
Investing is buying a product from a bank or financial institution that will hopefully grow in value.
If the buyer now sells that product at the value that it is now, the buyer will make money!
Some of the investment products that people or companies can buy are:
- bonds
- low-interest or government GICs
- mortgage funds
- stocks/mutual funds/growth funds
Some of these products like stocks, mutual funds or growth funds are high or higher risk to buy. The buyer can make a lot of money quickly in a short amount of time, but they can also lose their value quickly. The buyer has to pay close attention to these to make sure they don’t lose money.
The following images display examples of the stock increasing in value (Stock A), and the stock decreasing in value (Stock B).
Other products like bonds or government GICs do not make a lot of money quickly. These products may make just a little improvement over a longer time. In these cases, the buyer doesn’t have as high a risk of losing all their money.
The amount of money that a buyer or investor invests is called the capital. This is the money that they originally invested to buy the bonds, or stocks, or any of the other items in the list.
It is important to know that:
- High-risk investments – stocks, mutual funds, growth funds do not guarantee that the investor will make money on their investment
- Low risk investments – GICs can guarantee that the investor will at least not lose any money on their investment
Capital gains
The amount of money that is made from an investment is called capital gains. If a product increases in value and the buyer sells that product, they make money. This means that the investor has made capital gains.
Principal + Capital Gains = More Money
For example, if a person bought a house for $500,000 and sold it for $800,000, they would have capital gains of $300,000. Another example would be if a person purchased 10 shares of Amazon stock for $200 each, and four years later sold the stock for $400 each, they would have made $2,000 in capital gains.
If the investor purchases a product, and the product loses value, then there are no capital gains. If the buyer sells, they will lose money.
Student Success
Think-Pair-Share
Choose and discuss, if possible, one of the following situations. Try to use the following vocabulary.
- capital gains
- capital
- investment
- high risk investment
- low risk investment
Situation A
Jo invests (or buys) a financial product for $20. After one year, Jo sells the financial product and gets $35.
Situation B
Jo invests (or buys) a financial product for $20, After one year, Jo sells the financial product and gets $5.
Record your responses in a format of your choice.
Note to teachers: See your teacher guide for collaboration tools, ideas and suggestions.
Consolidation
Practice
Create two simple investment situations where:
- an investor purchases a product that gains value
- an investor purchases a product that loses value
You can record your situation using any method you would like. Be sure to use vocabulary that you learned in the Action section!
Did you have similar situations? Share, if possible.
Reflection
As you read through these descriptions, which sentence best describes how you are feeling about your understanding of this learning activity? Press the button that is beside this sentence.
