Capital Market Theory and Portfolio Strategies
Strategy questions test MPT, CAPM, efficient markets, diversification, allocation, active/passive styles, volatility management, and leverage.
How to study the Series 65
Treat the Series 65 as an adviser competency exam: quantify risk, classify the product, profile the client, then apply fiduciary and registration rules.
Core concepts
Concept 1
Modern portfolio theory, CAPM, and efficient market concepts frame risk, return, diversification, and expected compensation for risk.
Exam cue: Match the strategy to the client's objective and constraints.
Concept 2
Strategic and tactical allocation, growth, value, income, active, passive, and sector rotation all serve different client purposes.
Exam cue: Use diversification to reduce unsystematic risk, not all risk.
Concept 3
Dollar-cost averaging, diversification, options, leverage, and volatility techniques should match risk tolerance and objective.
Exam cue: Separate strategic allocation from tactical adjustments.
Risk pitfalls and guardrails
Promising diversification eliminates market risk.
Guardrail: Avoid answers that skip client profile, risk, disclosure, custody, approval, or fiduciary analysis.
Using leverage for a preservation objective.
Guardrail: Avoid answers that skip client profile, risk, disclosure, custody, approval, or fiduciary analysis.
Confusing passive indexing with tactical sector rotation.
Guardrail: Avoid answers that skip client profile, risk, disclosure, custody, approval, or fiduciary analysis.
Memory anchors
MPT
Modern portfolio theory emphasizes portfolio risk and return rather than each holding alone.
CAPM
CAPM links expected return to systematic risk measured by beta.
Efficient Market
Efficient market theory says prices reflect available information.
Strategic Allocation
Strategic allocation sets long-term target weights.
Tactical Allocation
Tactical allocation makes shorter-term shifts from targets.
Active Style
Active management tries to outperform a benchmark.
Passive Style
Passive management seeks to track a benchmark.
Diversification
Diversification reduces unsystematic risk across holdings.
Dollar-Cost Averaging
Dollar-cost averaging invests fixed amounts over time.
Leverage
Leverage magnifies gains and losses.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
An adviser applies modern portfolio theory (MPT). What is the central idea of modern portfolio theory?
An adviser refers to the efficient frontier from modern portfolio theory. What does the efficient frontier represent?
Answer all questions to submit.
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Move forward only after this module is stable.
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