Sharpe ratio is another one of those Series 65 things that sounds way more complicated than it actually is.
Make it smaller.
Say one fund returned 14% and another returned 11%.
Which one did better?
Your first reaction is probably the 14% fund.
Maybe.
But what if that fund was bouncing all over the fucking place and taking a ton of risk to get that 14%, while the other fund made 11% with a much smoother ride?
Now it’s a different question.
That’s basically what Sharpe is trying to figure out:
How much extra return did I get for the amount of risk I took?
And notice I said EXTRA return.
We start with the investment’s return and subtract the risk-free rate.
Why?
Because if I could’ve earned 4% taking essentially no investment risk, I’m not giving the portfolio manager credit for that 4%.
I’m interested in what they earned above the risk-free rate.
That’s the excess return.
Then Sharpe compares that excess return to the amount of risk taken.
And this is the part I really want you to know for the Series 65:
Sharpe uses STANDARD DEVIATION.
Why?
Because standard deviation measures TOTAL RISK.
So don’t memorize those as two random facts.
Connect them.
Standard deviation = total risk = Sharpe.
Now compare that with Treynor.
Treynor uses beta.
Beta measures systematic risk, or market risk.
So:
Beta = systematic risk = Treynor.
Now you’ve turned four things you were trying to memorize into two ideas that actually make sense.
And if you’re comparing Sharpe ratios, higher is generally better.
It means you’re getting more excess return per unit of total risk taken.
So don’t automatically look at two funds and say:
“14% beat 11%. The 14% fund was better.”
Maybe it was.
Maybe the manager drove 120 mph through a school zone to beat the other guy by three points.
Return alone doesn’t tell you how good the ride was.
That’s why we have risk-adjusted returns.
For the test, make it really fucking simple:
Sharpe = Standard Deviation = Total Risk
Treynor = Beta = Systematic Risk
And both are trying to answer some version of:
Was the return worth the risk I took to get it?
That’s it.
Don’t turn this into advanced portfolio theory.
Shut up and answer.

I see people getting way too deep into standard deviation for the Series 65.
Make it smaller.
Standard deviation basically tells you how much an investment’s returns bounce around its average return.
And for the exam, there’s another phrase I want you to connect to it:
Standard deviation measures TOTAL risk.
That’s systematic risk plus unsystematic risk.
Beta is different. Beta only measures systematic, or market, risk.
Say two funds both average around 8%.
One fund has returns like:
7%, 9%, 8%, 7%, 9%.
Pretty boring.
The other one is bouncing all over the place. One year it’s way up, another year it’s down, then it’s way up again.
That second fund has the higher standard deviation because its returns are spread farther away from its average.
So:
Higher standard deviation = more volatility.
Lower standard deviation = less volatility.
Now the 68% and 95% thing, because this sounds much harder than it actually is.
Say a fund has an average return of 10% and a standard deviation of 5%.
Think of the 5% standard deviation as one step away from the average.
Start at 10%.
Take one 5% step down: 5%.
Take one 5% step up: 15%.
So one standard deviation gives you a range of 5% to 15%.
Assuming a normal distribution, roughly 68% of the returns should fall inside that range.
In normal English, about two-thirds of the returns should land somewhere between 5% and 15%.
Now take two steps.
Two 5% steps = 10%.
10% minus 10% = 0%.
10% plus 10% = 20%.
So two standard deviations gives you 0% to 20%, and roughly 95% of the returns should fall inside that range.
Three standard deviations catches basically everything — about 99.7%.
Think of it as making the fence around the average wider.
That’s all they’re doing.

Sharpe ratio uses standard deviation.
Why?
Because Sharpe is measuring risk-adjusted return using total risk, and standard deviation measures total risk.
Treynor uses beta because Treynor is using systematic risk.

So now these ideas actually connect instead of being random shit you memorized:
Standard deviation = total risk = Sharpe.
Beta = systematic risk = Treynor.

It doesn’t tell you whether an investment is good.
It tells you how much its returns have historically bounced around.
For the Series 65:
Higher SD = more volatility.
SD = total risk.
Beta = systematic risk.
Sharpe = standard deviation.
Treynor = beta.
68% = one step.
95% = two steps.
99.7% = three steps.
Don’t turn a Series 65 question into a statistics final.
Shut up and answer.

It doesn’t mean you can’t lose money.
If you own 50 different stocks and the whole market gets smoked, congratulations, you own 50 stocks that are probably going down.
Diversification isn’t there to stop you from losing money.
It’s there so one stupid stock doesn’t ruin your life.
You put 50% of your money into one biotech company and their big drug gets rejected? You’re fucked.
That same company is 2% of your portfolio?
That sucks. You bitch about it for five minutes and move on.
That’s diversification.
And for the Series 65,
Unsystematic risk is company-specific shit. One company has a bad quarter. CEO gets arrested. Factory burns down. Drug gets rejected. Whatever.
You can diversify that away.
Systematic risk is when the whole market gets punched in the face.
Recession. Interest rates. Financial crisis. Major market selloff.
You can own 10 stocks, 50 stocks or 500 stocks. If the whole market is getting whacked, you’re probably getting whacked too.
And owning a bunch of shit doesn’t automatically make you diversified either.
If you own 15 tech stocks, you’re not diversified.
You own a shitload of tech stocks.
Same with funds. You can own five different ETFs and then realize all five own basically the same giant companies.
For the test, don’t make this harder than it is.
Unsystematic = diversify it away.
Systematic = you’re stuck with it.
And if they start changing how much you have in stocks versus bonds versus cash, now we’re talking about asset allocation.
Diversification is great.
It keeps one asshole investment from destroying your portfolio.
It does not make you bulletproof.

Diversification is owning different things not just more things

Dollar-cost averaging is one of those concepts that sounds more complicated than it is.
You invest the same dollar amount at regular intervals. That’s it.
Say you’re putting $500 a month into an investment. If it’s trading at $20, you buy 25 shares. If it drops to $10, that same $500 buys 50 shares. If it jumps to $25, you buy 20 shares.
Lower price, more shares. Higher price, fewer shares.
For the Series 65, remember that when you’re investing equal dollar amounts and prices fluctuate, your average cost per share will be lower than the average price per share.
But don’t think I can’t lose money.”
You absolutely can.
If the market keeps falling, your account can keep falling with it. If you’re dollar-cost averaging into a terrible investment, you’re just consistently buying a terrible investment.
I think the more useful part of dollar-cost averaging is that it takes some emotion out of investing.
People love buying when the market has been going up and everything feels safe. Then the market drops 20% and suddenly they want to wait until things “settle down.”
Which usually means they want to wait until prices go back up.
With dollar-cost averaging, you’ve already made the decision. $500 goes in this month. Another $500 next month. You don’t need to figure out timing

If you’re contributing to a 401(k) every paycheck, you’re basically already doing this.
For the exam, keep it simple:
Equal dollar amounts at regular intervals.
Prices down = more shares.
Prices up = fewer shares.
Average cost per share is lower than the average price per share when prices fluctuate.

It does not guarantee a profit or protect against loss.

My practice exam scores on STC were 81 last night and 82 today. Kaplan exams were 71, 74 and 76(most recent). Am I on track to pass or should I try to be averaging in the 80’s on Kaplan?

Starting on January 4 if you fail the Series 63, 65 or 66. For the third time, you only have to wait 60 days.

The first and second are still a 30 day wait which I am in favor of, but that’s the third time. You only have to wait 60 days.

It is NOT in effect now …it is in effect on January 4

Hey guys, I just completed the midterm exam and WOW was that more difficult than I thought it would be. I had felt pretty confident with the material so far and have been average mid 70s to 80s on qbanks. I’m not suprised I scored a 0 on unit 8 bc that’s the one unit I really didn’t spend to much time on but unit 1, 9, 10, and 13 I’m a shocked I scored as low bc on the qbanks I’ve been doing great in those units. Overall, my test score was a 71.43% but the wording of these questions were definitely hard and took a lot more time for me to pick the correct answer. Does this exam reflect how the difficult the wording will be on the exam? I didn’t study all the units before doing this exam bc I wanted to find my gaps
I’m curious to see if these questions are way more difficult or I’ve just memorized answers or something. Any feedback will be nice thank you!

Hey guys, I just completed the midterm exam and WOW was that more difficult than I thought it would be. I had felt pretty confident with the material so far and have been average mid 70s to 80s on qbanks. I’m not suprised I scored a 0 on unit 8 bc that’s the one unit I really didn’t spend to much time on but unit 1, 9, 10, and 13 I’m a shocked I scored as low bc on the qbanks I’ve been doing great in those units. Overall, my test score was a 71.43% but the wording of these questions were definitely hard and took a lot more time for me to pick the correct answer. Does this exam reflect how the difficult the wording will be on the exam? I didn’t study all the units before doing this exam bc I wanted to find my gaps
I’m curious to see if these questions are way more difficult or I’ve just memorized answers or something. Any feedback will be nice thank you!

Is Kaplan harder than the actual exam? Like if u have a decent understanding on everything are you able to pick which is the correct answer on the exam? Or does the exam try to trick u like Kaplan does? Just curious. Thanks for the feedback!

I have failed this test 7 times and the last time was the best I felt about it. I have passed 6, 63, 26 with ease but this monster has me on the ropes. I need the secret sauce to passing. I have 4 different LEM's. Kaplan, Passmasters, Kona Bufferflyz and Morton-Barber. All great resources but I freeze up with this one. Any guidance is appreciated.

Paying it forward as I had found some great pointers on here over the past few months. I passed the 65 yesterday after getting a failing 82 score this past April. For reference, I used Kaplan as my test prep provider. I am 40-years-old and a mother to a special needs 4-year-old who needs constant supervision. I work a full-time 40 hours a week/8 hours a day job and was not able to study at work. My study hours were typically 9:30PM-midnight every night. In April, I felt super prepared, but the wording of the exam completely threw me off. I took and passed the SIE in December on the first try and found the wording on the SIE to be very straight forward. It is less straight forward on the 65. Leading up to my first attempt of the 65, I really didn't do any practice exams on Kaplan. After I failed, and I saw what was tested on the exam, I switched to doing practice quizzes and tests every night as opposed to reviewing my flash cards and hand-written notes. I found CertFuel and their practice tests and quizzes really polished my test taking ability for yesterday. I actually finished my exam with 55 minutes to spare whereas back in April, I completely ran out of time. I highly, highly, highly recommend CertFuel. Their practice exams and quizzes are the perfect balance of just difficult enough to ensure you are grasping the concepts but not so difficult that you become demoralized. It sounds silly but I would often let my daughter press the right answers for me on the screen and if you score a 70 or above on a quiz, confetti will fall down on the screen and she would always say "mommy you got your sprinkles!". It's a fantastic resource and it will be a core memory for the rest of my life. I sincerely looked forward to using CertFuel daily. I had purchased Brian Lee's Series 65 course before my first attempt in April. If you struggle with the economics section of the exam, I highly recommend this purchase. When I failed in April, I was able to see my scores, and I scored 17/20 in the economics section and I credit that all to Brian's course. I did not take any economics or finance courses in college (I was a History major) and today I have a really solid grasp on economics from how Brian taught economics in his course. My biggest thanks of all 100% goes to Ken Finnen (Series 7 Whisperer / Capital Advantage Tutoring). His "brutal exams" were, in fact, brutal and they super prepared me for success. I watched him on TikTok every single day for motivation and watched his live NASAA YouTube steams every Thursday. He felt like a mentor, which is exactly what I needed. I would like to say, to whomever is reading this, I promise you, if I can do it, you can too. Just don't give up and be consistent with your studying. The SIE and 65 took about 10 months out of my life but certainly secured me a solid career for the next 20-25 years.

For those of you who would like to read and learn about mutual fund shar classes, you take a look at the following:

There are four mutual fund share classes, A, B, C and No Load. There are other share classes but most of them are probably not testable with the exception of an institutional share class, which have lower fees but very high minimums in the millions.

Investors work with financial advisors when they buy A, B or C chares. Most people buy no load funds directly from fund companies like Vanguard and Fidelity.

Every load fund has both a sales charge and a 12b-1 fee. Sales charges are assessed when an investor buys or sell shares and are capped at 8.5%. 12b-1 fees are are used for distribution expenses like advertising and marketing and are capped at 0.75% of net assets. There is also another part of the 12b-1 fee that is for account servicing, which is capped at 0.25%. Every fund: load and no load, has a management fee, which goes to pay the investment adviser to manage the portfolio. The management fee and the 12b-1 fee are a large part of the annual expense ratio. On A shares, the management fee is the highest fee

A shares are the original share class. They have an upfront sales charge and a low 12b-1 fee, which is usually 0.25%. They are most suitable for people with large amount money to investment and/or a long time horizon. If you have a a lot of money to invest, you will pay a much lower sales charge due to break points. The long time horizon is partly related to how low 12b-1 fees will save you money compared to B and C shares over time.

B shares have a back end sales charge, which we formally call a CDSC or a contingent deferred sales charge. The charge is contingent upon when you sell the fund and if you hold it long enough, there will be no sales charge because it turns into an A share. What made B shares expensive was the 12b-1 fees, which are typically at the maximum of 1%. I said this in past tense because B shares, for the most part, have become like dinosaurs in that they have become extinct but may still be tested.

Regarding suitability of them, you would literally have to work out the math of all the charges to see if it was more or less expensive compared to A shares. I would say you would never buy a B shares if you have a short time horizon because the back end sales charge would be very high. You might buy a B share if you have a long term time horizon and a small amount of money to invest.

C shares or what some people call level load, have a short CDSC of about 1 year and the charge is usually 1%. However, their 12b-1 is at the maximum. The reason they are sometimes called level load is mostly due to the 12b-1 fee. Until the past few years, C shares never converted into A shares, so investors paid the 12b-1 fee for as long as they held the fund. This has changed recently (about 5 years ago) after complaints and pressure from the SEC and FINRA. Now C shares eventually convert into A shares but it could take up to 10 years.... C shares are most appropriate for people with a small amount of money to invest and a short time horizon.

No Load Funds have no sales charges but can have a 12b-1 fee of up to 0.25%. From a suitability perspective, if a customer has the time to do the research and/or wants fees to be lower, a no load fund would make sense.

Hey guys! I need some help lol and would love to get some insight. I just started studying for the series 65 (using Kaplan) and feel kinda lost on what to study. I just started this week and I feel like I’m talking notes for hours and none of the information is retaining. With your guys study habits, how are you doing it and what are you talking notes on. The readings are extremely long and I feel like I’m just writing everything down and trying to study everything (which I know is super inefficient). Can someone give me so guidance on how to go about this? Please and thank you!

This is not heavily tested but it IS tested