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Lesson plan · Investing · Lesson 4

Funds, ETFs, and Index Funds

Pooled investing, and how fees quietly add up.

  • 45 minutes
  • Grades 9–12
  • Intermediate
  • Activity: pairs
Present slidesWorksheet + keyStudent lesson

Objectives

Students will be able to:

  • Explain how mutual funds and ETFs pool investors' money
  • Describe what an index fund tracks
  • Calculate the long-term cost of an expense ratio

Materials

Key vocabulary

Market index
A list that tracks part of the market. The S&P 500, for example, tracks about 500 large U.S. companies.
Expense ratio
The yearly fee a fund charges, as a percentage of your money. A 1% expense ratio costs $10 a year for every $1,000 invested — every year.

45-minute agenda

  1. 0–5 min

    Warm-up

    Post: “Would you rather try to pick the one winning company, or own a tiny piece of 500 companies? Why?”

  2. 5–12 min

    Direct instruction

    Present the lesson slides. Make sure students leave with these points:

    • Funds = instant variety in one purchase.
    • Index funds track a market index instead of picking winners.
    • Expense ratio = yearly fee as a % of your money.
    • A 1% fee can cost tens of thousands over decades.

    Use the “See it” slide ($10,000 over 30 years at a hypothetical 7% return) to make the idea visual.

  3. 12–17 min

    Worked example

    Walk through “The 1% that costs $18,000” on the slides. Pause before the result and ask students to predict it.

  4. 17–22 min

    Live demo

    Project feel the fee from the slides or the Compound Growth Calculator. Change one input at a time and have students call out what they think will happen.

  5. 22–32 min

    Fee Face-Off

    Format: pairs · 10 minutes

    1. Scenario: $10,000 invested for 30 years at a hypothetical 7% return before fees.
    2. Pairs compare three funds: 0.05%, 1%, and 2% expense ratios (use 6.95%, 6%, and 5% returns after fees).
    3. Pairs calculate or use the calculator to find each ending value and the dollar cost of the higher fees.
    4. Pairs write a one-line tip for choosing a fund.

    What to look for: After 30 years: 0.05% fee ≈ $75,063, 1% fee ≈ $57,435, 2% fee ≈ $43,219. The 1% fee costs about $17,628 and the 2% fee about $31,843 compared with the low-cost fund.

  6. 32–37 min

    Check for understanding

    Use the question slides — or run them as a Four Corners game. Answers:

    1. What does an index fund try to do? — C. Match the performance of a market index
    2. About how much does the fund charge you this year? — B. $40
    3. Because fees are small percentages, they don't matter much over decades. — False
  7. 37–42 min

    Discussion

    • Why do you think so many people pay for active management even though most funds trail their index?
    • Where else in life do small, repeated fees add up?
  8. 42–45 min

    Exit ticket

    Prompt: What does an index fund try to do?

    Answer: Match a market index (like the S&P 500) instead of trying to pick winners.

Differentiation

Common misconception

“A 1% fee is tiny.” Charged every year on your whole balance, it can cost tens of thousands of dollars over decades.

Support

Show how to convert an expense ratio to a decimal (0.20% = 0.002) before calculating.

Extension

Find two real index funds that track the same index and compare their expense ratios.

Homework or make-up work

Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/investing/funds-etfs-index-funds. No account needed; progress saves on their device.