Comparing Investment Returns

Overview

Students investigate how investment performance is measured over time. They calculate the rate of return for individual assets and a diversified portfolio, then use evidence to evaluate which portfolio performs best and why. The lesson builds on percentage change, financial mathematics and interpreting graphs.

Learning intentions

Students will:

• calculate percentage returns for individual investments, including gains, losses and income received
• calculate a portfolio’s overall rate of return using weighted values
• compare investment performance across different time periods
• evaluate a portfolio using numerical and contextual evidence.

Success criteria

• I can use the rate of return formula accurately: Rate of return = (income + change in value) ÷ initial value × 100
• I can distinguish between a positive return, a loss and no change in value.
• I can calculate and explain the overall return of a portfolio.
• I can justify an evaluation of a portfolio using calculations, comparisons and risk considerations.

Curriculum links

• Financial mathematics — solve problems involving compound interest and depreciation.
• Financial mathematics — solve problems involving simple interest, earning money and spending money.
• Variation and rates of change — analyse graphs showing increasing and decreasing values and variable rates of change.
• Linear relationships — graph and interpret relationships using gradient and intercept concepts.

Lesson structure (50 minutes)

1. 0–5 min · Hook and retrieval. Open with the investment comparison hook showing two fictional investments: one rising steadily and one fluctuating before finishing higher. Ask, “Which is the better investment?” Students individually write a first judgement, then recall percentage increase and decrease with a partner.

2. 5–13 min · Explicit teaching. Use the rate of return formula slides to model an investment bought for $2,000, now worth $2,150, with $40 income received: [ \frac{40+(2150-2000)}{2000}\times100=9.5% ] Emphasise that a fall in value creates a negative return and that income must be included. Students identify the initial value, final value, income and change in value in the example.

3. 13–25 min · Individual asset calculations. Distribute the individual investment calculations worksheet. Students calculate returns for three fictional assets, such as shares, a term deposit and a managed fund, across one year. Circulate and check substitution before students complete each calculation. Pause after question two for a whole-class check and address common errors, including dividing by the final value or forgetting the negative sign.

4. 25–36 min · Portfolio investigation. Present the portfolio data on the portfolio investigation slides. Students work in groups of three, with roles of calculator, checker and reporter. They calculate each asset’s dollar return, add the initial values to find the portfolio total, add all income and changes in value, and calculate the portfolio rate of return. Groups compare their answer with another group and resolve any differences.

5. 36–44 min · Performance analysis and evaluation. Groups use the portfolio evaluation questions to compare two portfolios over two years. Students analyse total return, annual changes, losses, fluctuations and diversification. They prepare a short recommendation answering: “Which portfolio would you choose for a cautious investor, and what evidence supports your decision?” Require reference to at least two calculations and one consideration beyond return, such as risk or consistency.

6. 44–50 min · Plenary and exit check. Return to the hook using the comparison and plenary slides. Students revise their original judgement, then complete the final worksheet question: “An asset starts at $5,000, earns $100 income and finishes at $4,700. Calculate and interpret its rate of return.” Invite two students to explain why the return is negative.

Resources

• the investment comparison and teaching deck
• the rate of return and portfolio worksheet
• Calculators or spreadsheet software
• Whiteboard and markers
• Projector or interactive display
• Group role cards or a visible timer
• Fictional investment data prepared in Australian dollars

Assessment

• Check retrieval responses and question students during modelling to identify misconceptions about percentage change and negative returns.
• Monitor worksheet calculations, group explanations and peer checking, focusing on correct use of initial value and inclusion of income.
• Use the exit question to assess individual calculation and interpretation. Collect responses to identify students needing a follow-up lesson on weighted portfolio returns.

Differentiation

• Provide a formula box, worked example, colour-coded labels for initial value, final value, income and change, and a calculator for students requiring support.
• Use mixed-ability groups with clearly assigned roles. Provide sentence starters such as, “The portfolio performed better because…” and “Although the return was higher, the risk may be…”.
• For EAL/D learners, pre-teach “asset”, “income”, “capital gain”, “capital loss”, “portfolio”, “return” and “diversification”, supported by simple definitions and visual examples.
• Reduce the number of assets or provide partially completed tables for students with working-memory, numeracy or processing needs. Offer teacher conferencing before independent evaluation.

Extension

• Calculate each asset’s percentage contribution to the portfolio and explain why the portfolio return is not found by simply averaging the individual returns.
• Compare a stable lower-return portfolio with a volatile higher-return portfolio and write a recommendation for two different investor profiles.
• Use a spreadsheet to graph portfolio value over time and identify periods of increasing, decreasing and variable rates of change.