A WebQuest designed to teach students how to reach monetary goals through investing in stocks using the Internet. Kent Crenshaw, Computer Science instructor at Germantown High School, Germantown TN., a part of the Shelby County school system, created the site. This WebQuest is currently being used as supplemental material for Mr. Crenshaw's Personal Computing and Software Tools classes in grades 9-12. However it could be used by anyone wanting to learn how to do research on the Internet or how to invest in the stock market.

Introduction

The Stock market is a place where a $500 investment in a company named Aware in November 98 would net you $8,700 six months latter. Or where a $500 investment in June 98 in the same stock would be worth $166 - six months later. (See chart above.) In this WebQuest you will use the Internet to create a portfolio of stocks to fund a Roth IRA for the current year.

The site is divided into six parts to guide you through the steps necessary to set up your portfolio. They should be taken in the order that they appear on the menu bar for a full understanding of the process. There are exercises for you to complete as you work through the site.

Savings

Before you can invest in the stock market you have to have money saved. For most people this is the most difficult part of investing. It is easy to think of what you want to spent your hard earned money on today as opposed to setting it aside for future spending. The oxymoron, you can't have money and spend it too, is difficult especially for the young to grasp. Why would you want a million dollars if you can't spend it. Good question. However, if you spent it would you still have a million dollars. What good is money if you can't spend it? The answer has to be to let it work for you. Most people work for a living and get paid for their effort. If they don't work then they don't get paid. For someone who becomes ill, disabled, or for whatever reason cannot work then they have a problem. Money can be the source of more money. Other people want your money and are willing to pay you to use it for a period of time. The payment for the use of your money for a period of time is called interest. If you have enough money, the interest you can receive for renting it out to someone else can be thought of as a way of making money without doing work. For this to be a significant amount, you must either have a lot of money to rent out or receive a lot of interest for the money you have.
There are many places to rent your money out. Banks are thought to be safe places to rent your money and millions of Americans do this in the form of savings accounts, certificates of deposit (CD's), and other investment instruments that are guaranteed by the federal government. If you need quick access to your money then a savings account will serve you well. A CD pays more interest but you must pay a penalty for early withdrawal. The ability to get your money fast is often referred to as liquidity.

The Stock Market

The stock market is another place to rent out your money. The difference between the stock market and a bank is most evident in the areas of uncertainty of your rent money. Banks may give you less rent but will guarantee the amount that they give you. For some people this may be the most important part of renting because they need a guaranteed income. People who fall into this group include retirees and handicapped individuals who are being taken care of by others with the income from money set aside for their care by family members who may no longer be living. We all would like to think that if something happened to us that there would be a source of income to pay our bills. Social Security was designed with this purpose in mind. There are insurance policies, which will provide a similar service. The IPO market is a source of funds for companies trying to start a new company or to expand an existing company. Without such a source of funds these companies would have to borrow all their money from the banks and pay interest to the banks. By offering individuals and other companies the chance of ownership in their company in the form of shares of stock in the company, they can avoid having to pay interest to the banks. This is very important for some companies who may take longer to develop a profit from their ideas. However, most stocks that are purchased are done so from other individuals or companies who own the stock. Even though in theory you are not really loaning your money to a company when you purchase stock you can still think of it in that way because the results are the same. For example, say you put $1000 in the bank for a year at 6% interest and a year later they paid you $60 interest. If you took your money out of the bank you would have $1060. If you purchased $1000 worth of stock and a year later after paying for buying and selling the stock you ended up with $1060, it would be the same as if you were loaning out your money. The interest on your $1000 would be 6% the same as the bank paid. Most people put their money in the stock market because they hope to get a higher rate of return then they would with a bank. The stock may not only fail to give them interest on their investment, it may go down in value and cause them to lose some or most of their investment money. Because of this higher risk factor, the rewards must over the long run  be greater or not many people would take the risk.

Balanced portfolio

Placing all your eggs in the same basket can result in scrambled eggs if things don't go the way you think they will. For this reason, most people place their money in a variety of savings vehicles to spread the risk out.  What you may need your money for in an emergency will determine how much you place in each sector. This should be a reasoned decision based upon your age, obligations, special circumstances and other factors. Using other people's ideas about what percent should be in the bank and what percent should be in stocks is better than a poorly though out plan or no thought at all. Portfolios should be as varied as are people.

Are stocks safe?

There are as many opinions about the stock market as there are people. Many of these opinions come from quoting other people and may have been handed down from generation to generation. Your great grandfather may have lived through the great depression and formed his opinion of the stock market during those trying times and imprinted it firmly on his children who in turn did the same. I ask you to consider this. Which would be safer, to buy 1 extra CD (the music type) a week or to save the money and invest in the stock market. After a few years you may have a fabulous collection of music but could you use it to make a down payment on a new house. As I was looking through my mother's attic I discovered a great collection of 78 rpm records of singers like Bing Crosby.   Who knows there may have been a rare one there but I doubt it, like most people she probably only bought the popular ones. Think how much more excited I would have been if I had discovered instead a stack of old stock certificates for coke. Each share of coke stock is worth 50 times what it was worth just 30 years ago and Bing Crosby was an old man at that time.

Roth IRA
Starting in 1998 you can invest up to a maximum of $2000 of earned income in an Individual Retirement Account (IRA) and earn tax free money. The money you invest has to have the taxes paid on it unlike traditional IRAs where the taxes are due as you withdraw your earnings. They also differ in that the Roth IRA's initial investment may be withdrawn tax and penalty free at any time. In a lot of ways the Roth and traditional IRAs are exact opposites. The Roth IRA is the first time since federal income tax was inacted that you can get rich and not have to pay taxes on your gain. No one should miss this golden opportunity. However statistics show that only one in twenty Americans are currently taking advantage by starting one. Don't be a "wish I had of" when you reach 60 years of age.
Don't Jump to Conclusions
We will spent less than one semester looking at the stock market. During this brief time (I know it seem like forever to you but as stocks go it is brief) the stock market may do great, Bear market, or not so great, Bull market, or maybe both during the same semester. You should not form long term opinions of the market until you have seen it in all phases. I ask you to revisit the internet six months, a year, then five years  from now and check the stocks you have been following. Do this even if you didn't pick so well the first time. You may be surprised at what you find. Great stocks may have cooled down, poor ones may have recovered. The business world is an ever-changing place but you will find that over the long haul stocks will outperform all other forms of investments and should definitely have a place in your financial future.