Series 65 · Cheat Sheet
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| Dimension | Key Questions | Red Flags | ||
| Financial Position | Income, assets, liabilities, net worth | Insufficient liquidity for stated goals | ||
|---|---|---|---|---|
| Investment Objectives | Growth, income, capital preservation, speculation | Conflicting objectives (max growth + safety) | ||
| Risk Tolerance | Volatility tolerance, loss capacity, psychological comfort | Claims high tolerance but panics in downturns | ||
| Time Horizon | Short, intermediate, long-term; multiple goals with different timelines | Mismatch: short horizon + 100% equities | ||
| Liquidity Needs | Emergency reserves, upcoming expenses, redemption frequency | Illiquid portfolio for high near-term needs | ||
| Tax Situation | Income level, tax bracket, loss harvesting potential, holding periods | High earner in illiquid low-yield securities | ||
| Type | Requirement | Advisory Implications | ||
| Accredited Investor | $200K+ individual income OR $300K+ joint OR $1M+ net worth (excl. primary residence) | Required for certain private offerings | ||
| Qualified Purchaser | $5M+ net worth in investments OR $25M+ family wealth | Required for hedge fund access | ||
| Qualified Client | $750K+ AUM with adviser OR $1.5M+ net worth OR accredited + ≥5yr relationship | Permit performance-based fees | ||
| Component | Meaning | Range | ||
| $E(R_i)$ | Expected return on security/portfolio | — | ||
| $R_f$ | Risk-free rate (Treasury yield) | — | ||
| $\beta$ | Systematic risk relative to market | <1: defensive; >1: aggressive | ||
| $R_m - R_f$ | Market risk premium | ≈5–8% historical | ||
| Metric | Formula | When to Use | Interpretation | |
| Sharpe Ratio | $(R_p - R_f) / \sigma_p$ | Compare portfolios with different risk levels | Higher = better risk-adjusted return | |
| Treynor Ratio | $(R_p - R_f) / \beta_p$ | Compare portfolio to market index | Focuses on systematic risk only | |
| Jensen's Alpha | $R_p - [R_f + \beta_p(R_m - R_f)]$ | Measure active manager value-add | Positive alpha = outperformance | |
| Strategy | Approach | Cost | Tax Efficiency | Suitable For |
| Active | Beat benchmark via security selection/timing | High fees | Lower (turnover) | Complex, opportunities in mispricings |
| Passive | Track index, buy-and-hold | Low fees | Higher | Belief in efficient markets, cost-conscious |
| Style | P/E | Dividend | Volatility | Suitable For |
| Growth | High | Low/none | Higher | Long horizon, can tolerate swings |
| Value | Low | Often higher | Lower | Income focus, shorter horizon |
| Strategy | Structure | Interest Rate Risk | Reinvestment Risk | Use Case |
| Laddering | Bonds maturing across years (e.g., 1, 3, 5, 7, 10) | Moderate | Reduced (staggered reinvestment) | Stable income, known liabilities |
| Barbell | Split: long + short duration bonds; avoid intermediate | Dual (high + low) | Reduced | Uncertainty about rate direction |
| Bullet | Concentrate in one maturity near target date | Highest near maturity | Concentrated | Immunization of known liability |
| Immunization | Match duration of bond portfolio to liability date | Minimal | Controlled | Pension obligations, future expenses |
| Form | Definition | Implication | ||
| Weak | All past price/volume data reflected in current price | Technical analysis ineffective | ||
| Semi-strong | All public info reflected; fundamental analysis ineffective | Active management unlikely to beat market | ||
| Strong | All public + private info reflected; no one beats market | Even insiders cannot outperform | ||
| Concept | Action | Benefit | ||
| Tax Loss Harvesting | Realize losses to offset gains | Reduce taxable income | ||
| Asset Location | Tax-inefficient securities in tax-deferred accounts | Higher after-tax return | ||
| Long-term Capital Gains | Hold >1 year for lower rate (15–20%) vs. short-term (ordinary income) | Significant tax savings for high earners | ||
| Qualified Dividends | Hold qualified stocks |
Aligned to the NASAA Series 65 content outline.
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