Building a Portfolio

This interactive lesson reinforces diversification within and across asset classes. Students examine how stocks, bonds, and cash serve different purposes in a portfolio; compare diversified funds with individual securities; and consider how investment goals, time horizon, and risk tolerance influence asset allocation. Teachers: create a class and sign in for student access to the Student Learning Library.

Introduce the Portfolio category through Vanguard’s four core investing principles: goals, diversification, costs, and discipline. Students consider how these principles influence the construction and management of an investment portfolio. Part 1 explores diversification, retirement and tax-advantaged accounts, investment costs, and behavioral finance. Stop video at 4:31.

Teach the complete lesson, including the investment simulation and diversification calculations. Review risk and expected return briefly, as students encountered these concepts in Foundations. Emphasize how combining investments can change the range of possible portfolio returns. Ask: “How can diversification help investors manage the risk-return tradeoff we studied in Foundations?”

When investing, the general rule is this: The greater the risk, the higher the potential reward and vice versa. Given that relationship, there is no free lunch in investing. The lesson includes five types of risk and compares them with the risks-rewards associated with some of the primary investment tools, providing an overview of the modern investment world.