Many times, when clients hear the word “diversification,” they think the more assets, the better. However, not all additions to a portfolio are created equal. Measuring assets by the risk they bring to the portfolio and correlation with existing assets can have huge implications on portfolio construction decisions.   Within the CFA® program’s portfolio construction framework, there is an equation that tests whether adding a new investment into the portfolio will help improve results over time. It states that if the Sharpe ratio of the new asset is greater than the Sharpe ratio of the exis ..read more

I am passionate about behavioral economics (behavioral finance is behavioral economics applied to finance problems; it is thus a subset of behavioral economics). I teach it in my classes and have written a book about it. Behavioral economics has applications to investments, corporate finance, public policy, and beyond. Daniel Kahneman won the Nobel Prize in Economics* in 2002 for being the pioneer in this field, and just this year Richard Thaler won the Nobel Prize for his work in this area. If Kahneman is the grandfather of behavioral economics, Thaler is the father. As you might know, behavi ..read more

There are many reasons to become a CFA charterholder. You will find near-universal agreement that holding the CFA designation improves your job prospects across the globe, adds significantly to your human capital, and grows your professional prestige and personal brand. The short story is that it’s hard, but it’s worth it. After becoming a charterholder, you will likely have the opportunity and flexibility to obtain a job that is exactly what you’re looking for, and you’ll be making a very comfortable living doing so. Many people spend an entire lifetime in search of such career balance! Of co ..read more

The new 2024 CFA curriculum has been released for Levels I and III. This article will summarize all of the important changes to the curriculum and how it affects your preparation. This was a significant update in many areas in Level I. The Quantitative Methods, Economics, and Financial Statement Analysis sections were each split between pre-readings and regular readings. The pre-reading material will not directly be tested on the Level I exam, but is assumed knowledge required for more advanced material. Several readings were removed while others are new. Level III updates were relatively smal ..read more

It is difficult to offer advice to aspiring charterholders that is applicable to all three levels of the CFA® exam series. As you may have already discovered, each level is fairly unique. Level I and Level II are far apart in difficulty while Level II and Level III differ greatly in format. If you aim to pass each level on your first attempt, I will give you one piece of advice no matter which level you are currently preparing for: forget the curriculum—base your studying around practice exams. As a finance professional, I am sure you will appreciate the reality that CFA exam study is an inves ..read more

I’d like to share some mindset hacks helpful in passing the CFA exams, along with some pointers on how to approach this daunting and rewarding experience. As a charterholder myself,  I’ve had the privilege of mentoring candidates through all three levels, and I hope this helps you in your studies. A Test of Commitment Let’s start with understanding the answer to a burning question: “Why are the pass rates so low?”  To me, there are several factors in play, but first and foremost, I think the Institute is testing the commitment of the candidate. I do not think it’s because the exams t ..read more

When I first began pursuing the CFA charter, I was a lone wolf. I didn’t do any prep courses. I didn’t get any materials other than the curriculum books. I didn’t talk to other candidates. I didn’t look at forums. And despite not having had much background, I didn’t engage with my local society in any way except to apply for a scholarship (which was graciously—and somewhat mysteriously—granted to me). In fact, I had never even met anyone that had taken a CFA exam! I had always been a good test taker, though, and I thought for sure that I’d have no problem whatsoever with the Level I exam. Not ..read more

It sounds pretty ominous: A 300-hour study commitment over the course of four to six months, which works out to be roughly between 12.5 and 18.75 hours per week. Oh, and that 300-hour assumption is an average; any individual might need to put in considerably more effort in order to master the material well enough to pass the test. Now, even young, single people can have some trouble juggling this schedule. So just imagine if you have young children in the house and commitments to family. Children probably won’t understand your need to escape frequently for some quiet time. They’ll only see tha ..read more

The overall purpose of performance measurement is to help us select an investment and provide ongoing information about how our investment is doing so we can make good decisions about what to do next—both as an investor and as a money manager. In the course of everyday life, we often apply some kind of performance measurement and evaluation. When looking to a buy a car, for instance, it’s important to know how many miles per gallon it gets (or how far it can travel on a full charge), the length of the warranty, and what is actually covered under the warranty. To investigate all our options, th ..read more

From humble origins in the early 1970s, index investing has become the 800-pound gorilla of investments. First derided, then accepted as a technique, these days, money moves out of active equity management and into passive vehicles every day. Vanguard launched the first retail index mutual fund in 1976. After reaching $100 billion in assets in 1999, today it holds more than $4 trillion. In the past 10 years, passive funds have gained $1 trillion in asset flows while active funds have seen outflows of the same amount.  As an active investor, I may have a bias. I will admit to using passive ..read more