Session 2: Investment Vehicles and Markets#
🤖 AI Copilot Reminder: Throughout this session, you’ll be working alongside your AI copilot to understand market structure, evaluate investment vehicles, and prepare to teach others. Look for the 🤖 symbol for specific collaboration opportunities.
Section 1: The Investment Hook#
The $1,000 Dilemma#
After Session 1, Sarah understands she needs to invest for growth rather than hiding money in CDs. She opens Robinhood and stares at the screen with $1,000 ready to invest. The options are overwhelming:
Current Market Investigation Challenge:
🤖 AI Copilot Activity: Before reading further, research current prices and basic information for these options. What patterns do you notice? Which options provide more diversification with $1,000?
Individual Stocks:
Apple (AAPL): Current price = ?
Tesla (TSLA): Current price = ?
Microsoft (MSFT): Current price = ?
ETFs:
SPDR S&P 500 ETF (SPY): Current price = ?
Vanguard Total Stock Market (VTI): Current price = ?
iShares Core S&P 500 (IVV): Current price = ?
Your Analysis: With $1,000, how many shares of each could Sarah buy? What’s the diversification difference?
Your Challenge: Help Sarah make her first investment decision by understanding how different vehicles work and their trade-offs.
Career Connection: As business professionals, you’ll evaluate investment options for companies, recommend strategies to clients, or manage employee benefit programs. Understanding vehicle structures is essential for any finance career.
Timeline Visualization: Sarah’s Investment Journey#
Today 1 Month 1 Year 5 Years
\$1,000 → Choose Vehicle → Monitor Performance → Rebalance → Long-term Growth
↓
Market Structure Decision:
- Direct ownership (stocks)
- Pooled investments (funds)
- Fixed income (bonds)
- Alternative investments
Your Mission: Master the investment marketplace so you can confidently implement strategies for yourself, your future company, or your clients.
Business Skills You’ll Gain: Market structure analysis, vehicle selection criteria, cost-benefit evaluation, and portfolio implementation strategies.
Section 2: Foundational Investment Concepts & Models#
Market Structure Fundamentals#
🤖 AI Copilot Activity: Before diving into market structure, ask your AI copilot: “Help me understand how financial markets are organized and why this structure matters for individual investors. What role do different participants play in creating an efficient marketplace?”
Primary vs. Secondary Markets - Detailed Framework
Primary Market is where securities are first created and sold to initial investors, establishing the original funding for companies and governments.
Definition: The market for new security issuances where capital flows directly from investors to the issuing entity
Key Characteristics:
Securities are created and sold for the first time
Issuer receives the proceeds from the sale
Prices are set through negotiation or auction processes
Institutional investors often have preferential access
Examples: Initial Public Offerings (IPOs), new bond issuances, rights offerings, private placements
Process: Company works with investment banks (underwriters) to determine pricing, timing, and distribution
Impact on Individual Investors: Limited direct access, but creates the securities that later trade in secondary markets
Secondary Market is where existing securities trade among investors, providing liquidity and price discovery without new capital flowing to the original issuer.
Definition: The marketplace where previously issued securities are bought and sold between investors
Key Characteristics:
No new capital raised for the issuing company
Provides liquidity for investors who want to buy/sell
Continuous price discovery through supply and demand
High accessibility for individual investors
Examples: New York Stock Exchange (NYSE), NASDAQ, bond trading platforms, over-the-counter (OTC) markets
Function: Enables investors to convert investments to cash and allows price discovery
Importance: Without liquid secondary markets, investors would be reluctant to invest in primary markets
Market Participants - Complete Ecosystem
Individual Investors (That’s You!)
Your Role: End users of investment products, providing capital for economic growth
Your Characteristics: Smaller trades, longer holding periods, learning analysis skills
Career Advantage: Understanding how you fit into the larger market ecosystem
Collective Power: Individual investors collectively drive major market trends and corporate decisions
Institutional Investors (Your Future Employers/Clients)
Career Opportunities: Organizations that hire finance professionals to manage large pools of money
Types and Career Paths:
Mutual Funds: Portfolio management, research analyst, client service roles
Pension Funds: Investment strategy, risk management, consultant relations
Insurance Companies: Asset-liability management, credit analysis, alternative investments
Hedge Funds: Quantitative analysis, fundamental research, operations roles
Endowments: Long-term strategy, alternative investments, board relations
Why This Matters: These institutions drive market movements and offer high-level finance careers
Market Makers and Liquidity Providers
Role: Facilitate trading by providing continuous buy and sell prices
Function: Reduce transaction costs and improve market efficiency
Compensation: Profit from bid-ask spreads and volume
Examples: Designated market makers on NYSE, electronic market makers
Regulators and Oversight Bodies
SEC (Securities and Exchange Commission): Primary federal regulator ensuring fair and transparent markets
FINRA: Self-regulatory organization overseeing broker-dealers
CFTC: Regulates derivatives and commodities markets
Function: Protect investors, maintain fair markets, facilitate capital formation
Investment Vehicle Classifications#
🤖 AI Copilot Activity: Ask your AI copilot: “Explain the fundamental differences between owning individual securities versus pooled investment vehicles. What are the trade-offs in terms of control, diversification, costs, and complexity?”
Direct Ownership Securities - Complete Analysis
Common Stock (Equity Securities)
Definition: Ownership shares in corporations that provide voting rights and claims on company profits
Key Characteristics:
Represents proportional ownership in the company
Voting rights on major corporate decisions
Potential for capital appreciation and dividend income
No guaranteed returns; value fluctuates with company performance
Last claim on assets in bankruptcy (after bondholders)
Advantages: Direct ownership, unlimited upside potential, voting control, potential tax advantages
Disadvantages: High concentration risk, requires individual company analysis, no income guarantees
Examples: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN)
Suitable For: Investors with time for research, higher risk tolerance, desire for direct control
Preferred Stock (Hybrid Securities)
Definition: Securities that combine characteristics of stocks and bonds, providing fixed dividends and priority over common stock
Key Characteristics:
Fixed dividend payments (like bonds)
Priority over common stock for dividends and liquidation
Usually no voting rights
May be convertible to common stock
Limited upside potential compared to common stock
Advantages: More predictable income than common stock, higher claim priority
Disadvantages: Interest rate sensitivity, limited growth potential, complex terms
Use Case: Income-focused investors seeking middle ground between stocks and bonds
Individual Bonds (Debt Securities)
Definition: IOUs issued by corporations, governments, or agencies promising fixed payments and principal return
Types and Characteristics:
Government Bonds: Backed by federal government (Treasury bills, notes, bonds)
Corporate Bonds: Issued by companies, higher yields but more credit risk
Municipal Bonds: Issued by state/local governments, often tax-exempt
Fixed Income: Regular interest payments plus principal return at maturity
Advantages: Predictable income, principal protection (if held to maturity), diversification from stocks
Disadvantages: Interest rate risk, credit risk, inflation risk, limited growth potential
Pooled Investment Vehicles - Comprehensive Framework
Mutual Funds
Definition: Investment companies that pool money from many investors to buy diversified portfolios managed by professionals
Structure and Operations:
Open-end funds that create/redeem shares daily
Priced once daily after market close (Net Asset Value - NAV)
Professional management with defined investment objectives
Economies of scale for small investors
Types: Stock funds, bond funds, balanced funds, sector funds, international funds
Advantages: Professional management, instant diversification, low minimum investments, regulatory oversight
Disadvantages: Management fees, less control, tax inefficiency, no intraday trading
Cost Structure: Expense ratios (0.5-2%), possible load fees, 12b-1 fees
Exchange-Traded Funds (ETFs)
Definition: Investment funds that trade on exchanges like individual stocks while providing portfolio diversification
Structure and Operations:
Trade continuously during market hours
Market prices determined by supply/demand (may differ slightly from NAV)
Most track indexes passively (lower fees)
Creation/redemption process maintains price efficiency
Advantages: Low costs, tax efficiency, intraday trading, transparency, broad diversification
Disadvantages: Trading costs, premium/discount to NAV, limited active management options
Examples: SPY (S&P 500), VTI (Total Stock Market), BND (Total Bond Market)
Closed-End Funds
Definition: Investment companies with fixed number of shares that trade on exchanges, often at discounts or premiums to NAV
Characteristics: Fixed capital structure, can use leverage, often specialized strategies
Advantages: Access to specialized strategies, potential discount opportunities
Disadvantages: Premium/discount volatility, less liquidity, higher fees
Account Types and Tax Implications
Taxable Accounts
Immediate access to funds
Pay taxes on dividends and capital gains annually
Most flexible but least tax-efficient
Tax-Advantaged Accounts
Traditional IRA/401(k): Tax deduction now, pay taxes on withdrawals
Roth IRA/401(k): After-tax contributions, tax-free growth and withdrawals
529 Plans: Education-specific tax advantages
Mathematical Framework: Diversification Benefits#
Portfolio Return Calculation For a portfolio with weights w₁, w₂, …, wₙ and returns r₁, r₂, …, rₙ:
Portfolio Return = Σ(wᵢ × rᵢ)
Portfolio Risk (Standard Deviation) σₚ = √[Σ(wᵢ²σᵢ²) + ΣΣ(wᵢwⱼρᵢⱼσᵢσⱼ)]
Where:
σᵢ = standard deviation of asset i
ρᵢⱼ = correlation coefficient between assets i and j
Key Insight: Portfolio risk depends not just on individual asset risks, but on how assets move together (correlations).
Order Types and Execution#
🤖 AI Copilot Activity: Ask your AI copilot: “Explain how different order types protect investors and help manage trading costs. When would you use a limit order versus a market order? How does the bid-ask spread affect small investors differently than institutional investors?”
Market Orders: Execute immediately at current market price Limit Orders: Execute only at specified price or better Stop Orders: Trigger market order when price reaches specified level Stop-Limit Orders: Trigger limit order when price reaches specified level
Bid-Ask Spread: Difference between highest price buyers will pay (bid) and lowest price sellers will accept (ask)
Section 3: The Investment Gym - Partner Practice & AI Copilot Learning#
Solo Practice Problems (10-15 minutes)#
Career Challenge: Investment Advisory Role
🤖 AI Copilot Activity: Before calculating, work with your AI copilot to research current prices for these securities. What factors should you consider beyond just number of shares?
Sarah has $1,000 to invest. As her financial advisor, analyze these options:
100% in SPY at current price = ? shares
50% SPY + 50% VTI at current prices = ? total holdings
25% each in AAPL, MSFT, GOOGL, TSLA = ? individual positions
Your Analysis: Which provides best diversification? What are the trade-offs? How would you explain this to a client?
Business Decision: Tax Strategy Optimization
As an HR benefits consultant, help Sarah optimize her 401(k) strategy:
Traditional 401(k): Tax deduction now (22% bracket), taxed later (12% expected)
Roth 401(k): No deduction (pay 22% now), tax-free growth and withdrawals
Your Task: Research current tax implications and calculate which approach maximizes Sarah’s after-tax wealth over 40 years. What factors beyond taxes should influence this decision?
Investment Cost Impact Analysis
🤖 AI Copilot Activity: Before calculating, research: “What are expense ratios and how do they compound over time? Why do small differences in fees matter for long-term investors?”
Compare total cost impact for $10,000 investment over 10 years:
Individual stocks: $0 ongoing fees + ? (research trading costs/time)
Mutual fund: 0.8% expense ratio + ? (research load fees)
ETF: 0.1% expense ratio + ? (research bid-ask spreads)
Critical Thinking: What hidden costs exist beyond expense ratios? How do costs affect real-world returns?
AI Copilot Learning Phase (10-15 minutes)#
AI Collaboration Prompt: “Act as a financial advisor specializing in investment vehicle selection. Help me understand the trade-offs between different investment approaches for a beginner: 1) What are the key differences between buying individual stocks vs. ETFs for diversification? 2) How do expense ratios and fees impact long-term returns? 3) What factors should guide the choice between traditional and Roth retirement accounts? Prepare me to explain these concepts clearly to a peer, focusing on practical decision-making criteria.”
Student Preparation Task: Work with AI to master these concepts, then prepare to teach:
The mathematical basis for diversification benefits
How market structure affects costs and liquidity
The trade-offs between different account types
Reciprocal Teaching Component (15-20 minutes)#
Structured Roles:
Portfolio Manager: Explain diversification benefits and vehicle selection
Operations Specialist: Focus on account types, costs, and market mechanics
Client Advocate: Challenge recommendations and ask practical questions
Teaching Requirements: Each student must explain:
Financial Logic: Why does diversification reduce risk without necessarily reducing returns?
Implementation Details: How do ETFs provide instant diversification compared to individual stocks?
Cost Structure: How do fees and account types affect long-term wealth accumulation?
Peer Teaching Scenario: “Your partner is Sarah with $1,000 to invest. Explain why she should choose VTI (Total Stock Market ETF) over picking 3-4 individual stocks, including both the mathematical reasoning and practical implementation benefits.”
Collaborative Challenge Problem (15-20 minutes)#
The Family Investment Advisory
Your team advises three family members:
Client Profiles:
Jenny (Age 25): $200/month to invest, 40-year horizon, high risk tolerance
Mike (Age 35): $800/month to invest, 30-year horizon, moderate risk tolerance
Lisa (Age 55): $1,200/month to invest, 10-year horizon, low risk tolerance
Challenge Questions:
Recommend specific investment vehicles for each (stocks, bonds, ETFs, etc.)
Suggest appropriate account types (taxable, traditional IRA, Roth IRA)
Justify your recommendations using portfolio theory and market structure concepts
Deliverable: Create a simple allocation model showing:
Recommended asset allocation percentages
Specific investment vehicles (with actual ticker symbols)
Account type recommendations with rationale
Robinhood Integration (15 minutes)#
Platform Exploration:
Market Data Analysis: Look up current prices and expense ratios for:
VTI (Total Stock Market ETF)
BND (Total Bond Market ETF)
Individual stocks in your sector of interest
Account Setup: Navigate account types available:
Individual taxable account
Traditional IRA
Roth IRA
Order Entry Practice:
Practice placing limit orders (without executing)
Understand bid-ask spreads for different securities
Compare liquidity between individual stocks and ETFs
Research Task: Find and compare:
Expense ratios: VTI vs. SPY vs. ITOT (all S&P 500 tracking ETFs)
Trading volume: Apple vs. a small-cap stock
Bid-ask spreads: Popular ETF vs. individual stock
Debrief Discussion (10 minutes)#
Key Insights:
Market structure creates the “rules of the game” for implementing investment strategies
Diversification benefits are mathematical, not just theoretical
Costs compound over time and significantly impact wealth accumulation
Account type selection can be as important as investment selection
Section 4: The Investment Coaching - Your DRIVER Learning Guide#
Coaching Scenario: “Building Sarah’s First Portfolio”#
Sarah has $1,000 initial investment plus $500/month ongoing contributions. She needs to make specific implementation decisions:
Decision Framework:
Investment Vehicles: Individual stocks vs. ETFs vs. mutual funds
Account Type: Taxable vs. Roth IRA
Allocation Strategy: 100% stocks vs. mixed portfolio
Cost Management: How to minimize fees while maintaining diversification
Define & Discover#
🤖 DRIVER Stage 1: Structured Prompt Starters
Step 1 - Context Exploration Prompt: “Act as a portfolio construction specialist and help me explore the context of implementing an investment strategy. What are the key factors that make vehicle selection complex for beginning investors? What market structure considerations should influence Sarah’s choices? What has research shown about optimal implementation strategies for young investors?”
Step 2 - Problem Framing Prompt: “Help me frame Sarah’s specific implementation decisions systematically: 1) What are the key trade-offs between simplicity and optimization for a beginning investor? 2) How should transaction costs, account minimums, and tax implications influence vehicle selection? 3) What criteria should guide the choice between individual stocks, ETFs, and mutual funds? 4) What asset allocation research supports recommendations for 22-year-old investors?”
Step 3 - Verification and Refinement Prompt: “Review my problem framing for Sarah’s investment implementation decisions. Is this framework comprehensive and practical? What important implementation considerations might I be missing? How can I make this analysis more actionable for a beginning investor?”
Problem Framing:
Objective: Implement growth-oriented investment strategy with maximum diversification
Constraints: $1,000 initial, $500/month, limited investment knowledge, wants simplicity
Variables: Asset allocation, vehicle selection, account type, rebalancing frequency
Success Criteria: Low cost, broad diversification, easy to manage, tax-efficient
Documentation Target: “Clear investment implementation plan with specific vehicle selections, account recommendations, and ongoing management approach.”
Represent#
🤖 DRIVER Stage 2: Structured Prompt Starters
Step 1 - Visualization Planning Prompt: “Help me create a logical visual structure for Sarah’s investment implementation process. I need to map the decision flow from account selection through vehicle choice to ongoing management. What would be the most effective way to visualize these interconnected decisions?”
Step 2 - Model Structure Prompt: “Help me design the logical framework for implementing a portfolio strategy. What are the key steps in moving from investment goals to actual portfolio construction? How should I structure the comparison between different implementation approaches (simple vs. complex)?”
Step 3 - Logic Verification Prompt: “Review my logical structure for Sarah’s investment implementation. Does this framework capture the key practical considerations for a beginning investor? What am I missing in terms of cost management, tax efficiency, or ongoing maintenance?”
Visual Mapping:
Investment Implementation Decision Tree:
Account Type Decision
├── Taxable Account (flexibility)
└── Roth IRA (tax advantages)
↓
Vehicle Selection
├── Individual Stocks (control, higher risk)
├── Target-Date Funds (simplicity)
└── ETF Portfolio (balance of control and diversification)
↓
Allocation Strategy
├── Age-based (100 - age in stocks)
├── Three-fund portfolio (US stocks, international, bonds)
└── Total market approach (VTI + VXUS + BND)
Logic Documentation:
Portfolio Implementation Algorithm:
1. Determine tax-advantaged vs. taxable account priority
2. Calculate optimal asset allocation based on age and risk tolerance
3. Select specific investment vehicles based on:
- Expense ratios (target < 0.20%)
- Diversification breadth
- Liquidity requirements
- Minimum investment amounts
4. Implement dollar-cost averaging for ongoing contributions
5. Set rebalancing schedule (quarterly or semi-annually)
Implement#
🤖 DRIVER Stage 3: Structured Prompt Starters
Step 1 - Implementation Planning Prompt: “Help me plan the implementation of Sarah’s portfolio construction code. I need to create Python classes and functions that can handle different investment vehicles, calculate allocations, and track costs. What object-oriented design would work best? What financial calculations need to be implemented accurately?”
Step 2 - Code Development Prompt: “Help me implement the portfolio builder code step by step. Start with a class structure for managing ETF portfolios, then add methods for calculating shares, costs, and rebalancing. Make sure the code handles partial shares, expense ratios, and monthly contribution logic clearly.”
Step 3 - Code Review and Enhancement Prompt: “Review my portfolio implementation code for both technical accuracy and practical usability. Are the financial calculations correct? How can I make the code more robust and educational? What additional features would make this tool more useful for beginning investors?”
⚠️ CODE LEARNING NOTE: The following code is intentionally simplified for educational purposes and may contain incomplete logic or potential errors. Your job is to work with your AI copilot to:
Understand each line of code and its financial purpose
Verify the portfolio allocation and cost calculations against financial theory
Identify any limitations or potential improvements
Test the code with different inputs and scenarios
Enhance the code to handle edge cases and make it more robust
Remember: Learning comes from analyzing and improving the code, not just copying it!
Python Code Example:
import pandas as pd
import numpy as np
class PortfolioBuilder:
def __init__(self, initial_amount, monthly_contribution):
self.initial_amount = initial_amount
self.monthly_contribution = monthly_contribution
self.portfolio = {}
def add_etf(self, ticker, allocation_pct, price_per_share, expense_ratio):
"""Add ETF to portfolio with allocation percentage"""
self.portfolio[ticker] = {
'allocation': allocation_pct,
'price': price_per_share,
'expense_ratio': expense_ratio,
'shares': 0,
'value': 0
}
def calculate_initial_purchase(self):
"""Calculate initial share purchases based on allocation"""
for ticker in self.portfolio:
target_amount = self.initial_amount * self.portfolio[ticker]['allocation']
shares = int(target_amount // self.portfolio[ticker]['price'])
self.portfolio[ticker]['shares'] = shares
self.portfolio[ticker]['value'] = shares * self.portfolio[ticker]['price']
return self.portfolio
def monthly_investment_plan(self, months=12):
"""Simulate monthly investments with dollar-cost averaging"""
monthly_allocation = {}
total_monthly = self.monthly_contribution
for ticker in self.portfolio:
monthly_target = total_monthly * self.portfolio[ticker]['allocation']
monthly_allocation[ticker] = monthly_target
return monthly_allocation
def calculate_annual_costs(self):
"""Calculate total annual expense ratio costs"""
total_costs = 0
total_value = sum([etf['value'] for etf in self.portfolio.values()])
for ticker in self.portfolio:
etf_value = self.portfolio[ticker]['value']
annual_cost = etf_value * self.portfolio[ticker]['expense_ratio']
total_costs += annual_cost
return total_costs, total_costs / total_value if total_value > 0 else 0
# Sarah's Three-Fund Portfolio
sarah_portfolio = PortfolioBuilder(1000, 500)
# Add ETFs with current market data
sarah_portfolio.add_etf('VTI', 0.70, 220, 0.0003) # Total Stock Market - 70%
sarah_portfolio.add_etf('VXUS', 0.20, 55, 0.0008) # International Stocks - 20%
sarah_portfolio.add_etf('BND', 0.10, 75, 0.0003) # Total Bond Market - 10%
# Calculate initial purchases
initial_portfolio = sarah_portfolio.calculate_initial_purchase()
# Display results
print("Sarah's Initial Portfolio:")
print("-" * 40)
total_invested = 0
for ticker, data in initial_portfolio.items():
print(f"{ticker}: {data['shares']} shares = ${data['value']:.2f}")
total_invested += data['value']
print(f"\nTotal Invested: ${total_invested:.2f}")
print(f"Cash Remaining: ${1000 - total_invested:.2f}")
# Calculate ongoing costs
annual_costs, cost_percentage = sarah_portfolio.calculate_annual_costs()
print(f"\nAnnual Expense Ratio Costs: ${annual_costs:.2f} ({cost_percentage:.3%})")
# Monthly investment allocation
monthly_plan = sarah_portfolio.monthly_investment_plan()
print(f"\nMonthly Investment Plan (\$500):")
for ticker, amount in monthly_plan.items():
print(f"{ticker}: ${amount:.2f}")
Financial Logic Explanation:
Three-fund portfolio provides global diversification with minimal complexity
Age-based allocation (90% stocks, 10% bonds) appropriate for 22-year-old
Dollar-cost averaging reduces timing risk for monthly contributions
Low expense ratios (under 0.1%) minimize cost drag over time
AI Collaboration: “Help me enhance this portfolio builder to include: 1) Rebalancing logic when allocations drift, 2) Tax-loss harvesting opportunities in taxable accounts, 3) Comparison of target-date funds vs. self-managed portfolios.”
Robinhood Integration: “Use Robinhood to verify current prices and expense ratios for VTI, VXUS, and BND. Compare the total cost of this three-fund approach vs. a single target-date fund.”
Validate#
🤖 DRIVER Stage 4: Structured Prompt Starters
Step 1 - Validation Planning Prompt: “Act as a portfolio risk manager and help me design comprehensive validation tests for this investment implementation strategy. What benchmarks should I compare against? What are the most important edge cases to test? How do professional advisors validate their portfolio recommendations?”
Step 2 - Testing Strategy Prompt: “Help me create specific validation tests for Sarah’s portfolio implementation. I need to test: 1) Cost efficiency compared to alternatives, 2) Diversification adequacy, 3) Historical performance analysis, 4) Practical implementation challenges. What specific metrics and comparisons should I use?”
Step 3 - Results Interpretation Prompt: “Help me interpret the validation results for my portfolio implementation strategy. What do the test outcomes tell me about the robustness of this approach? What limitations should I acknowledge? How should I communicate the trade-offs to Sarah?”
Verification Methods:
Cost Comparison: Compare total expense ratios against target-date funds and robo-advisors
Diversification Analysis: Verify that three-fund portfolio provides adequate market coverage
Historical Backtesting: Test how this allocation would have performed over past 20 years
Simplicity Assessment: Evaluate complexity vs. optimization trade-offs
Stress Testing: Model performance during market crashes and high inflation periods
Benchmark Comparisons:
# Compare against common alternatives
alternatives = {
'Target Date 2065': {'expense_ratio': 0.0015, 'allocation': 'automatic'},
'Robo Advisor': {'expense_ratio': 0.0025, 'allocation': 'automatic'},
'Three Fund DIY': {'expense_ratio': 0.0004, 'allocation': 'manual'},
'Single VTI': {'expense_ratio': 0.0003, 'allocation': 'simple'}
}
Evolve#
🤖 DRIVER Stage 5: Structured Prompt Starters
Step 1 - Pattern Recognition Prompt: “Help me identify the core analytical patterns from Sarah’s portfolio implementation that apply to other investment decisions. What is the fundamental framework we used for vehicle selection and cost management? How does this approach extend to different types of investment scenarios?”
Step 2 - Application Extension Prompt: “Now that I understand this portfolio implementation framework, help me identify other investment contexts where this same approach applies. Consider 401(k) selection, taxable account management, international investing, and alternative assets. What are the similarities and differences in implementation?”
Step 3 - Integration and Advancement Prompt: “Help me connect this implementation framework to more advanced investment concepts. How does this vehicle selection and cost management approach prepare me for risk management, tax optimization, and institutional-level strategies? What should I learn next to build on this foundation?”
Pattern Recognition: This implementation framework applies to:
401(k) Selection: Choosing among employer-provided fund options using same cost/diversification criteria
Taxable Account Management: Optimizing for tax efficiency while maintaining diversification
International Investing: Extending diversification globally using similar vehicle evaluation
Alternative Assets: Adding REITs, commodities, or other asset classes using same analytical framework
Estate Planning: Implementing investment strategies across different account types and beneficiaries
Institutional Investing: Scaling up portfolio construction principles for larger portfolios
Forward Connections: “Understanding vehicle selection and cost management is crucial for Session 3, where we’ll quantify risk and return characteristics of different asset classes and optimize our allocation decisions using statistical measures.”
Reflect#
🤖 DRIVER Stage 6: Structured Prompt Starters
Step 1 - Learning Synthesis Prompt: “Act as an investment advisor and help me consolidate the key lessons from this portfolio implementation analysis. What fundamental principles about vehicle selection and cost management did we demonstrate? What was most important about understanding market structure? How did this analysis change my understanding of investment implementation?”
Step 2 - Application Planning Prompt: “Help me identify how I can apply this implementation framework to my own financial decisions and future learning. What specific next steps should I take? What other DRIVER applications would strengthen my portfolio construction skills? How does this foundation prepare me for more complex investment strategies?”
Step 3 - Meta-Learning Reflection Prompt: “Help me reflect on my learning process during this implementation analysis. What aspects of the framework were most valuable? Which concepts were most challenging? How can I improve my analytical thinking and AI collaboration for future investment implementation problems?”
Synthesis Questions:
How do market structure and costs affect long-term investment success?
What’s the optimal balance between simplicity and sophistication for different investor types?
How do tax considerations influence implementation decisions?
What role does diversification play in reducing implementation risk?
How does understanding vehicle characteristics improve investment decisions?
Next Applications: “Apply this vehicle selection framework to evaluate 529 education savings plans vs. taxable accounts for education funding goals.”
Section 5: The Investment Game - Financial Detective Work#
🤖 AI Copilot Activity: Before analyzing these scenarios, ask your AI copilot: “Help me understand how to systematically evaluate investment vehicles for different investor profiles. What factors should I consider when matching investment goals with appropriate vehicles? How do age, income, and risk tolerance affect vehicle selection?”
Part A: Recognition Scenarios (15 minutes)#
Investment Vehicle Identification: Match each investor scenario with the most appropriate vehicle and justify your choice:
Scenario: 65-year-old retiree needs steady income with capital preservation Options: Individual dividend stocks, Bond ETF, Target-date fund, Money market fund
Scenario: 30-year-old wants broad market exposure with minimal effort Options: Individual stocks, Total market ETF, Sector-specific ETF, Cryptocurrency
Scenario: High-income earner in 32% tax bracket wants tax-free growth Options: Taxable account, Traditional IRA, Roth IRA, 401(k)
Part B: Full DRIVER Application (30 minutes)#
Case Study: The Inheritance Decision
Maria, 28, inherits $50,000 from her grandmother. Current situation:
Income: $75,000/year
Debt: $25,000 student loans at 5% interest
Savings: $5,000 emergency fund
Retirement: Not yet started, employer offers 401(k) with 50% match up to 6%
Investment Goals:
House down payment in 5-7 years
Retirement security
Possible graduate school in 3-4 years
Your Challenge: Apply DRIVER framework to create comprehensive investment plan.
🤖 Assignment Reminder: Work closely with your AI copilot throughout this analysis, using the structured prompts provided for each DRIVER stage.
Required Analysis:
Define & Discover: Prioritize competing goals, determine appropriate time horizons (use structured prompts)
Represent: Create decision tree for fund allocation across goals
Implement: Design specific investment strategy with vehicle selections
Validate: Stress-test plan against different scenarios (market crash, job loss, etc.)
Evolve: Identify how plan should adapt as circumstances change
Reflect: Extract principles for managing competing financial priorities
Primary Deliverable: YouTube Video Presentation (8-12 minutes)
Your main assignment is a YouTube video presentation that demonstrates mastery of both financial logic and coding implementation.
Required Video Components:
Financial Analysis Section (4-6 minutes):
Clear explanation of how you analyzed Maria’s inheritance allocation decision
Demonstration of your vehicle selection methodology and cost analysis
Recommended allocation of the $50,000 across different accounts and vehicles
Ongoing investment strategy for Maria’s regular income with justification
Technical Implementation Section (4-6 minutes):
Step-by-step walkthrough of your Python portfolio construction code
Explanation of cost calculations and allocation algorithms
Demonstration of code execution with Maria’s scenario
Discussion of rebalancing logic and implementation
Integration & Conclusion (1-2 minutes):
How the technical analysis informed your allocation recommendations
Contingency plans for various scenarios based on your model
Connection to broader portfolio construction and vehicle selection principles
Video Production Requirements:
Screen recording showing your code execution and results
Clear audio explanation of both financial concepts and technical implementation
Professional presentation suitable for investment industry communication
Upload to YouTube (can be unlisted) and submit link
Written Supplement: AI Collaboration Reflection (200 words) Along with your video, submit a brief written reflection addressing:
Most Valuable Prompt: Which specific AI prompt from this session was most helpful for your learning? Copy the exact prompt and explain why it was effective.
Prompt Improvement: How would you modify or improve that prompt for future use?
Learning Process: How did working with your AI copilot change your understanding of investment vehicles and market structure compared to working alone?
Why Video Format? Video presentations provide an excellent opportunity to demonstrate your understanding of both financial concepts and technical implementation. This format allows you to showcase your analytical thinking, communication skills, and ability to integrate theory with practice - all valuable skills for investment professionals.
Section 6: Reflect & Connect - Investment Insights Discussion#
Individual Reflection (5 minutes)#
Reflection Prompts:
What surprised you most about the complexity of investment vehicle selection?
How did explaining market structure concepts help clarify your own understanding?
Which trade-offs (cost vs. convenience, simplicity vs. control) do you find most challenging?
Pair Discussion (10 minutes)#
Discussion Questions:
Compare your vehicle recommendations for Sarah - what factors drove your choices?
Discuss: “When is it worth paying higher fees for convenience or professional management?”
Share insights: What made the cost calculations most eye-opening?
Class Synthesis (10 minutes)#
Key Insights:
Market structure creates both opportunities and constraints for investors
Vehicle selection can be as important as asset allocation for long-term success
Costs that seem small (0.5% expense ratio) compound dramatically over decades
The “best” investment vehicle depends entirely on investor circumstances and goals
Section 7: Looking Ahead - From Investment Vehicles to Risk and Return#
Skills Developed Today#
Evaluated trade-offs between different investment vehicles
Analyzed costs and their long-term impact on wealth accumulation
Applied diversification principles to practical portfolio construction
Navigated market structure considerations for implementation
Bridge to Session 3#
Now that we understand WHERE to invest (vehicles and markets), Session 3 addresses HOW MUCH risk to take. We’ll move from qualitative concepts like “diversification” to quantitative measures of risk and return.
The Next Challenge: “I have my three-fund portfolio of VTI, VXUS, and BND, but how do I know if this 70/20/10 allocation is right for me? How do I quantify the risk I’m taking and the returns I can expect?”
Pattern Evolution Preview#
The vehicle selection criteria from today (cost, diversification, liquidity) become inputs for the quantitative risk-return analysis in Session 3. We’ll use historical data to measure what “risky” actually means in mathematical terms.
Preparation for Next Session#
Gather historical performance data for your chosen investment vehicles
Think about this question: “How would you define and measure investment risk?”
Section 8: Appendix - Investment Solutions & Implementation Guide#
Solutions to Practice Problems#
Portfolio Allocation:
SPY only: 2 shares ($860 invested, $140 cash remaining)
Mixed ETF: 1 SPY + 2 VTI shares ($870 invested, $130 remaining)
Individual stocks: Most diversified but highest concentration risk
Account Type Analysis:
Traditional 401(k): $500 → $400 after-tax investment → $21,725 after-tax at retirement
Roth 401(k): $500 → $390 after-tax investment → $21,240 tax-free at retirement Note: Analysis assumes tax rates; Roth advantages increase if tax rates rise
Cost Analysis (10 years, 7% growth):
Individual stocks: $0 ongoing costs
Mutual fund: $1,790 in fees over 10 years
ETF: $224 in fees over 10 years
Video Presentation Rubric for Session 2#
🤖 AI Copilot Activity: Before creating your video presentation, ask your AI copilot: “Help me structure an effective explanation of investment vehicles and portfolio construction. What key concepts should I prioritize? How can I clearly demonstrate the relationship between diversification, costs, and long-term wealth building?”
Financial Explanation (40%)
Excellent: Clear explanation of diversification benefits, cost impact analysis, account type trade-offs with supporting data
Good: Solid understanding of key concepts with minor gaps in explanation
Needs Work: Basic understanding but unclear explanations or missing key concepts
Inadequate: Fundamental misunderstanding of investment vehicles or market structure
Technical Implementation (40%)
Excellent: Working portfolio construction code, clear data flow, appropriate use of financial formulas
Good: Mostly functional code with minor issues, clear technical approach
Needs Work: Partially working implementation, unclear technical choices
Inadequate: Non-functional code or major technical errors
Integration & Communication (20%)
Excellent: Seamless connection between market structure theory and practical implementation
Good: Clear connections made between concepts and application
Needs Work: Some integration but gaps in connecting theory to practice
Inadequate: No clear integration between financial concepts and implementation
Implementation Guide#
Robinhood Teaching Points:
Emphasize research capabilities over trading frequency
Show how to find expense ratios and fund information
Demonstrate bid-ask spread concepts with real examples
Practice order entry without execution
Common Student Errors:
Focusing on short-term performance rather than long-term structure
Underestimating the impact of fees and costs
Confusing correlation with causation in market relationships
Over-complicating simple investment strategies
AI Collaboration Best Practices:
Require students to validate AI recommendations against course principles
Encourage exploration of multiple approaches before settling on solutions
Document the reasoning process, not just final recommendations
Extension Activities#
Advanced Analysis:
Compare international vs. domestic equity allocation research
Analyze tax-loss harvesting strategies for taxable accounts
Evaluate ESG (Environmental, Social, Governance) investment options
Real-World Applications:
Research employer 401(k) plan options and optimal strategies
Analyze robo-advisor portfolios vs. DIY approaches
Investigate alternative investment platforms and their trade-offs
Preparation for Session 3:
Download historical return data for chosen investment vehicles
Review basic statistics concepts (mean, standard deviation, correlation)
Explore risk assessment questionnaires from major investment firms