Lesson plan · Investing · Lesson 5
Diversification
Why owning many things reduces the damage any one can do.
- 45 minutes
- Grades 9–12
- Intermediate
- Activity: small groups
Objectives
Students will be able to:
- Explain diversification and why it reduces single-company risk
- Distinguish company-specific risk from market-wide risk
- Evaluate whether a portfolio is truly diversified
Materials
- Slide deck and a projector
- Worksheet (one per student)
- Exit ticket slips (bottom of the worksheet)
Standards
- National Standards for Personal Financial Education (2021)
- InvestingManaging Risk
- Texas TEKS §113.76 Personal Financial Literacy and Economics
- (8) The student understands the importance of saving and investing in creating wealth and building assets.
Topic-level alignment by FLC. How we map standards
Background reading
The official sources this lesson is based on.
45-minute agenda
0–5 min
Warm-up
Post: ““Don't put all your eggs in one basket.” What could go wrong with one basket? Now apply that idea to money.”
5–17 min
Direct instruction
Present the lesson slides. Make sure students leave with these points:
- Diversification = don't put all your eggs in one basket.
- It shrinks single-company risk — not market-wide risk.
- Many companies in one industry isn't truly diversified.
- It trades lottery-ticket upside for protection from wipeouts.
Use the “See it” slide (Portfolio loss when one company drops 50%) to make the idea visual.
17–22 min
Worked example
Walk through “One basket vs. twenty” on the slides. Pause before the result and ask students to predict it.
22–32 min
Basket Challenge
Format: small groups · 10 minutes
- Each group gets $1,000 to invest one of three ways: all in 1 company, equally in 5 companies in the same industry, or equally in 20 companies across many industries.
- Reveal events one at a time: (1) one company in each basket drops 50%; (2) the whole tech industry falls 30% (the 5-company basket is all tech; 4 of the 20 are tech); (3) the whole market falls 20%.
- Groups calculate their loss after each event (treat each event separately).
- Discuss which risks diversification reduced and which it didn't.
What to look for: Event 1: 1 company −$500; 5 companies −$100; 20 companies −$25. Event 2: 1 company (if tech) −$300; 5 companies −$300; 20 companies −$60. Event 3: every basket −$200. Diversification shrinks single-company and single-industry losses, but not market-wide drops.
32–37 min
Check for understanding
Use the question slides — or run them as a Four Corners game. Questions:
- About how much of your portfolio did you lose from that company?
- A diversified portfolio can't lose value during a recession.
- Which of these is the most diversified?
37–42 min
Discussion
- Why might someone still choose to invest heavily in one company?
- Where else do people use diversification in everyday life?
42–45 min
Exit ticket
Prompt: What kind of risk can diversification not remove?
Differentiation
Common misconception
“Owning lots of stocks means I'm diversified.” Not if they're all in the same industry.
Support
Provide a table with each basket's holdings per company already calculated.
Extension
Look up what an S&P 500 index fund holds (number of companies and top industries) and explain how diversified it is.
Homework or make-up work
Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/investing/diversification. No account needed; progress saves on their device.