LEVEL: Introductory

LENGTH: 45 minutes

Portfolio Management
Lesson Overview
This lesson continues the discussion of the relationship between risk and
diversification as students begin to think about managing investment portfolios.
Students will learn about the investment lifecycle. Then, the lesson will introduce
five popular portfolio styles. Students can think about how different people might
be more or less attracted to different investment portfolio styles.

Background Knowledge for Teachers

An investment portfolio is a collection of financial assets—including,
for example, stocks, bonds and mutual funds—that is strategically INSIDE THE COMPETITION
constructed to accomplish a specific financial goal. Portfolios usually 1. Use the concept of inves-
tor lifecycle to analyze the
include a variety of investments because diversification is a way to client
manage risk and potentially smooth out the volatility of investment 2. Inform students on various
returns. A number of factors determine what to put in a portfolio— portfolio management
styles and how to build
for example: the financial goal, the timeline in which this goal needs their own for the client.
to be achieved, and risk tolerance.

MATERIALS
Learning Objectives Provided
1. Student Worksheet (page 5)
At the end of this lesson, students will be able to: 2. Teacher Worksheet
■ Define investor lifecycle and articulate goals and portfolio (in a separate file)
considerations for each age group 3. Kahoot Game
Not Provided
■ Differentiate various portfolio styles and argue what the best Projector, screen, computer with
portfolio might look like for the client internet access

Glossary Terms STUDENT VOICES

Watch how Wharton faculty define and use the glossary terms Many Wharton investment
presented in this lesson: competitors have contributed
student essays to our online
■ REIT business journal. Connect your
students to the experiences of a
peer with the essay Keeping
ADDITIONAL GLOSSARY TERMS DEFINED IN THE LESSON Fear, Frustration and Joy Out of
PLAN: Your Stock Portfolio. Have any
■ Index Investing: Investors don’t try to guess the future moves in of your students managed a
the individual stocks or in the market as a whole, but buy an index portfolio? What might be the
and holds it. The most two famous indexes are the Dow Jones and topic of their student essay?
S&P 500

©2020 The Wharton School, The University of Pennsylvania

 Portfolio
Management 2
■ Index: In the stock market, index is a method to track a group of stocks selected by certain standards
■ Market Timing: Moving in and out of a financial market or switching between asset classes based on
investor predictions
■ Portfolio: A group of one’s selection of investment assets, e.g., stocks, bonds, real estate, etc.

Lesson Plan
SEQUENCE/TIME DETAILS

Start the lesson with the following questions to refresh students’ memories on previous
lessons.
Engage 1. What are some investment opportunities available for us?
/5 mins 2. If there’s risk, as we know there will be, how can we mitigate the risk in order to max-
imize our investment return?

INVESTOR LIFECYCLE AND PORTFOLIO

What is a portfolio?
Activity & A portfolio, in short, is a group of one’s selection of investment assets, e.g., stocks,
Definitions bonds, real estate, etc.
/15 mins Next, we are going to do a group activity.
1. Have students break into small groups. Give each group a different period in a
person’s life. For example: Young Adult (16-24), Young Professional (25-40), Mid-to-
Late Career (40-60), Late Career and Retirement (65+).
2. Each group should spend 10 minutes making a list of all the financial decisions that
concern someone in their specific age group. For example, the Young Professional
group can talk about salary, starting a family, saving for retirement, etc. Encourage
students to create one list for “daily decisions” (e.g. eat breakfast at home or grab
food at Starbucks) and another list for “long-term decisions” for their assigned age
group. Draw a timeline on a whiteboard with each age group on it. After time is up,
have each group share their lists (use chalkboard, chart paper, etc.) and write down
what students said on the white board.
3. Once all the groups have finished, you should have a nice timeline on the board,
starting with Young Adult and ending with Late Career and Retirement. Using this
timeline, ask the students to think about investment portfolios. What kind of port-
folio would you create for each group? It will be easiest to start this conversation by
looking at risk. Who is more willing to take risks? The young adult or the late-career/
retiree? Why? If a retired person loses a risky investment, does he or she have a way
to earn more income to offset the loss?
4. Using the timeline already created, introduce students to the investment lifecycle.
This includes four stages: accumulation, consolidation, spending, gifting. The accu-
mulation phase happens early in life as someone begins accumulating their invest-
ments and building a portfolio. During the consolidation phase people have usually
paid down some of their debt and begin thinking about retirement. In the spending
phase, the investor no longer has a steady income, but instead spends his or her
life savings (e.g. in retirement). Finally, in the gifting phase, if one ever reaches this
point, the investor can afford to give their assets to others. In general, as the lifecycle
progresses, investors become more and more risk-averse.

©2020 The Wharton School, The University of Pennsylvania

 Portfolio
Management 3
INVESTMENT STYLES
We already know from the activity above that different investors might have different
goals at different ages. Their preferred investment styles could vary too. The two most
Definitions & prominent investment styles are passive and active. A passive investment strategy is
Discussion also called “index investing”. Index, in the stock market, is a method to track a group of
/10 mins stocks selected by certain standards. It measures the performance of stocks in certain
industries, based on the selection standards. “Index Investing” means investors don’t
try to guess the future moves of individual stocks or in the market as a whole: They buy a
portfolio that invests according to the style rule (Large Stocks/Growth Stocks) and hold
it. The goal is typically to match the returns on a pre-specified benchmark index. The two
most famous indexes are the Dow Jones and S&P 500. Teachers can refer students to the
resources in the “Extend” section for more information.
In contrast, active investors attempt to beat the return on that index using their judg-
ment and trading skills. This involves an active process of stock selection. Active inves-
tors also choose to predict the short-term moves in the benchmark or individual stocks.
This is often referred to as a process of “market timing”, moving in and out of a financial
market or switching between asset classes based on investor predictions.
After explaining these two definitions, ask students to think about:
What is the advantage and disadvantage of each style?
Some possible answers:
1. A passive style generates fewer transaction expenses in general as it involves less
trading
2. Active investing might bring higher returns if the investor is skilled in stock selection
and timing the market. What if the investor has little or no skill? The risk becomes
really high.
Fun fact:
If you look at net returns (after deducting expenses), only 25-33% of active investors
outperform passive investors.

PORTFOLIO MANAGEMENT STYLES

So, if you are not a passive investor, what are some ways to manage your portfolios? We
Definition & are going to explore five common portfolio-management styles in this activity:
Activity
1. Break students into five smaller groups. Use the student worksheet on page 5. Give
/10 mins each group seven minutes to research one particular style and finish the worksheet.
2. After all groups finish, bring the whole class together and use the teacher worksheet
to explain each style.
3. Emphasize: There is no best portfolio style. Taking your client’s risk tolerance,
lifecycle and investment goals into consideration, you should consider any of these
possibilities or a combination of them.
4. Post-activity discussion questions:
a. Which portfolio style or combination of styles do you think might work for the
client?
b. How would your analysis on the client’s lifecycle guide your decision?
c. Would portfolio styles change as the client’s investor lifecycle progresses?

©2020 The Wharton School, The University of Pennsylvania

 Portfolio
Management 4
Kahoot Game
Click here to access the game.
Assess
/5 mins

1. Portfolios usually include a variety of investments because diversification is a way to

manage risk and potentially smooth out the volatility of investment returns.
2. A number of factors determine what to put in a portfolio—for example, the financial
Takeaways goal, the timeline in which this goal needs to be achieved, and risk tolerance.
3. Portfolio management styles vary by investors.

Extend
1. Definition: S&P 500 Index (Link)
2. Definition: Dow Jones Industrial Average (DJIA) (Link)
3. Article: Portfolio Managers: The Challenge Is Making More than One Winning Stock Pick (Link)
4. Article: The Investor Lifecycle: Changing Priorities, Changing Portfolios (Link)
5. Article: Behind the Blue Chips of the Dow Jones Industrial Average (Link)

©2020 The Wharton School, The University of Pennsylvania

 Portfolio
Management 5
Student Worksheet
PORTFOLIO STYLES
Portfolio Style Features
The Aggressive Portfolio

The Defensive Portfolio

The Income Portfolio

The Speculative Portfolio

The Hybrid Portfolio

©2020 The Wharton School, The University of Pennsylvania