Risk and Time Horizon — slides
Financial Literacy Club
Investing · Lesson 6
Risk and Time Horizon
Volatility, and matching investments to when you'll need the money.
12-minute lesson · learnwithflc.org
Risk and Time Horizon · 1 / 20
Financial Literacy Club
Investing · Lesson 6
Risk and Time Horizon
Volatility, and matching investments to when you'll need the money.
12-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Define volatility, time horizon, and risk tolerance
- Match types of investments to time horizons
- Explain why panic-selling locks in losses
Warm-up
If an investment you owned dropped 20% in a month, what would you do? Be honest.
Think, then write your answer.
The big idea
Risk and Time Horizon
Volatility, and matching investments to when you'll need the money.
Vocabulary
Volatility
How much an investment's value swings up and down. Stocks are more volatile than bonds, and bonds more than savings accounts.
Investing · Lesson 6
Stock markets have bad years. In 2008, for example, the S&P 500 fell about 37%. Over long periods, the U.S. stock market has historically recovered and grown — but past performance never guarantees future results, and recoveries can take years.
Vocabulary
Time horizon
How long until you need the money. It's one of the most important factors in how much risk makes sense.
Investing · Lesson 6
The shorter the time horizon, the less time you have to recover from a drop. That's why money needed soon usually stays in savings, while money for goals decades away can generally handle more ups and downs.
Vocabulary
Risk tolerance
How much volatility you can handle, financially and emotionally. If a 30% drop would make you panic and sell, that's important to know before you invest.
Investing · Lesson 6
The costly mistake
Selling after a big drop locks in the loss. Many investors lose more to panic-selling than to the drop itself. Knowing your time horizon in advance makes it easier to stay calm.
See it
For money needed within about three years, people commonly use savings or other low-risk options. For three to ten years, a mix of lower- and higher-risk investments is common. For ten or more years, people commonly accept more stock market ups and downs. These are general guidelines, not advice.
| Common approach | Why | |
|---|---|---|
| Under ~3 years | Savings, CDs, other low-risk options | Little time to recover from a drop |
| ~3–10 years | A mix of lower- and higher-risk investments | Some time to recover, but not unlimited |
| 10+ years | More stocks, accepting bigger swings | Time to ride out down years |
Real example
Same drop, different outcomes
Two people have $10,000 in a stock fund when the market drops 30%. Both now show $7,000.
- Ana needs the money for college tuition in four months. She has to sell and lock in a $3,000 loss.
- Ben is saving for retirement 40 years away. He doesn't need to sell. If the market recovers — as it historically has, though not on a schedule — the drop is temporary for him.
The investment was identical. The time horizon made all the difference.
Activity · whole class · 10 min
Ride the Roller Coaster
- Everyone starts with $1,000 invested. Reveal made-up yearly returns one at a time: 12%, -18%, 22%, 8%, -25%, 30%, 10%, -5%, 15%, 12%.
- After each year, students decide: hold, or sell and move to cash (0%). Selling is permanent for this game.
- Track two results on the board: someone who held for all 10 years, and someone who sold after the −25% year.
- Discuss how the seller felt at the time and how the result compares.
Check for understanding · 1 of 3
You're saving for a car you'll buy in 18 months.
What does a short time horizon suggest?
- AInvest aggressively to grow it faster
- BKeep it in lower-risk savings, since there's little time to recover from a drop
- CPut it all in one stock
- DTime horizon doesn't matter
B. Keep it in lower-risk savings, since there's little time to recover from a drop
With 18 months, a market drop could leave you short right when you need to buy.
Check for understanding · 2 of 3
Your long-term investments drop 25% in a scary month. You don't need the money for 30 years.
Which reaction usually causes the most damage?
- AStaying the course
- BReviewing your plan calmly
- CPanic-selling everything to stop the pain
- DContinuing regular contributions
C. Panic-selling everything to stop the pain
Selling after a drop turns a temporary decline into a permanent loss.
Check for understanding · 3 of 3
Because the stock market has grown over long periods historically, it's guaranteed to grow over any 5-year period.
- True
- False
False
There have been multi-year stretches with losses. Past performance doesn't guarantee future results.
Remember
Key takeaways
- Time horizon = when you'll need the money.
- Short horizon → lower risk. Long horizon → can handle more swings.
- Markets drop sometimes, sharply. It's normal, not rare.
- Panic-selling locks in losses.
Discuss
Talk it over
- How would you feel if an investment dropped 30%? What would you do?
- Why is it hard to stay calm when you see your investments losing money?
Exit ticket
What is a time horizon, and how should it affect how much risk you take?
Answer on your exit ticket before you leave.
Nice work today.
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