We have covered strategies and suggestions for level-specific studying in prior posts. Each level has its ‘core’ topics and should be approached in a way to maximize points. With around 50% of candidates failing any given level each year, you can’t afford to let easy points go by not studying as efficiently and effectively as possible.
Fortunately, there are also strategies and suggestions that will carry you through all three CFA exams. Some of these ideas are general ideas for effective studying while others are specific to the CFA curriculum and testing.
The CFA Institute candidate survey shows that candidates spend, on average, around 300 hours of studying for each level. The average is fairly close for candidates that pass their exam and those failing. If even unsuccessful candidates are spending 300 hours studying, then you may want to plan on an extra 50-100 hours to be more confident going into the test. This may seem like an overly aggressive plan but it becomes much more manageable if spread over 4-5 months.
Do not plan on being able to stick to your study schedule perfectly. Most candidates with families and a full-time career will have a hard time finding more than 15 hours a week to consistently devote to studying. Things always seem to come up like an extra workload at work or family responsibilities. There are approximately 22 weeks from the beginning of the year to the exam date. Starting in early January, if not before, should give you enough time to spread your study schedule out in a manageable way. *While this still only leaves about 330 hours at 15 hours per week, many candidates are also able to take a few days off to wrap up their study and augment total time.
Active Learning vs. Passive Learning
One of the hardest things to get through to candidates is the need for active learning techniques. A previous post detailed the effectiveness of active learning over passive. Studies show that active learning techniques are up to 2-3 times more effective for learning. Active learning is any technique where you need to engage in the curriculum, i.e. practice problems and talking about the topic.
Candidates should take advantage of provider test banks and the questions included in the Institute curriculum. The blue box and end-of-chapter questions in the curriculum are the closest in format and difficulty to those on the exams. Test banks provide are a great resource for testing your understanding of all or part of the curriculum and designing mock exams.
It doesn’t matter how well prepared or how confident you are, there will come a time when you question your ability to pass or to continue with the tests. Understand that this is natural and something you need to work through. An aggressive and organized study schedule will help immensely in beating back the fear of failure. You have chosen a difficult path and put yourself ahead of others in your profession, keep that drive and press on through the exams.
Below is a list of suggestions from a previous post for beating fear and those voices in your head that keep you from accomplishing your goals.
- Surround yourself with a strong support system- Let your friends and family know how difficult the exams are and how important they are to you. When times get tough, their encouragement will help guide you.
- Stay active in study groups and forums- Surrounding yourself with others working toward the same goal helps immensely. There’s strength in numbers!
- Start early- Poor preparation and not having a plan is the quickest way to self doubt. Write down a rigorous study program and stick to it, leaving yourself time for those what-if scenarios.
- Repetition- Knowing that you’ve been through the material a couple of times and can summarize the important points will boost your confidence. While this might be tough to do with the entire curriculum, there are options for condensed versions. FinQuiz offers both a curriculum-based study guide and topic summaries to help you move through the material multiple times and grasp the important stuff.
Keeping it Interesting
The curriculum is a compilation of academic and practical research in the field of investment analysis and asset management. Even condensed study guides can exceed 2000+ pages of material for each level. Some of the material can be extremely dry and monotonous. To be successful on the exams, you need to cover the curriculum multiple times. A prime hurdle will be avoiding burnout and boredom with your study and the readings.
To avoid burnout and boredom, you need to keep the material and your studying fresh by utilizing different resources and media. Using videos, flash cards, and talking with other candidates is a great supplement to the core resource of Institute curriculum and provider study guides.
Below is a list of different media and resources to keep your exam preparation fresh.
- Videos- Great for visual and kinesthetic learners, and a relatively quick way to get through the curriculum in a different medium but is inefficient passive learning
- Study Groups- Good use of active learning and can provide a good support system, but can be slow and misinformation is possibility
- Reading curriculum- Straight from the horse’s mouth, EVERYTHING on the exams will be here but the books may be better for building muscles than building exam scores
- Reading 3rd party condensed study notes– My core mode of study. I went through condensed notes at least three times at each level but these are also passive learning so you need to supplement with active learning
- Practice problems & mock exams- Second most useful method of studying for me. You need to read through curriculum/study notes to get a feel for the material but only practice problems and question banks will work it into your head and convert to long-term memory
- Flash cards- These are really an extension of practice problems but are more portable and more easily focused
Practice Problems and Mock Exams
This relates to the idea of active learning mentioned earlier. You will have no idea of your level of preparation until you start practice problems and testing your level of retention. At minimum, you should do a set (20 questions) of problems immediately after reading a study session. Then, complete another set of questions the next day. This will help learn the material studied and then cement it into your memory by reminding yourself. Always read the guideline answer for those questions you missed.
Mock exams, created from provider test banks, are an indispensible way to prepare for the exams. These can be half (3 hour) or full (6 hour) exams constructed from test bank questions in the topic weightings given by the Institute. You should plan on doing at least six full exams to get a good idea of where you need to guide your study time and your overall preparation for the exam. We know that no candidate with a score of 70% has ever failed the exam, so you should be aiming for something above this. I would aim for +80% in the core topics for the exams (Ethics, FRA, Equity, Fixed Income) while looking for at least 70-75% in the other topics. Beginning these mock exams around 7-8 weeks before the exam will allow you to shift your study focus and target weaknesses.
Ethical and Professional Standards is arguably the most important section of the three exams. Many candidates underestimate the topic because they think the questions will be intuitive and simple. Unfortunately, it is not as simple as merely don’t lie, cheat, or steal. First, concentrate on learning the basic idea behind each standard then do the problems in the curriculum multiple times. You need to get comfortable with the Institute’s reasoning and these questions are the best way to do it. The material here does not change much year-to-year or through levels, so spending more time on the first exam will make the second and third exams easier.
Financial Reporting and Analysis is another core topic worth around 20% of each of the first two exams. Much of the curriculum is built around a solid understanding of the three financial statements and analysis of how the 10-Q and 10-K presents a company’s performance. Understand how each line-item on the statements can be manipulated by management and how the statements are related. Again, spending extra time while studying for the first exam will build a strong understanding that can make the other two exams easier.
Equity Investments is also a core topic, more so at Level II but also worth around ten percent of the other two exams. The material is more quantitatively focused than other topics but the math involved is fairly basic. The area lends itself well to practice problems to better focus on the formulas required. Understanding the various inputs to the formulas, what they show and how they are related to analyze performance and valuation will get you many of the exam questions covering conceptual ideas.
Fixed Income is of slightly less importance than the material on equity investments, but still can be considered a core topic worth around 10% of each exam. The material is a mix of conceptual and quantitative, so you will need to divide your time for both. Understand the basics of debt instruments and how they are used in corporate finance and as an investment. Many candidates neglect the topic because they are less familiar with fixed income relative to equity investments.
Corporate Finance and Economics are largely conceptual topic areas. These are sort of in-between in importance because while they do not offer as many points it is fairly easy material to pick up. Understand the basic reasoning behind financial decisions at the corporate and macroeconomic levels and you shouldn’t have a problem.
Portfolio Management is not as important at the first level but then builds in weight until being the focus of the Level III exam. Understanding the basic ideas of risk and return measurement for the first exam will prepare you for some of the more detailed theory in the second exam. You will need to spend a considerable amount of time writing out Investor Policy Statements (IPS) for the Level III exam.
Alternative Investments, though a little more quantitatively intense at the second level, is tested at a conceptual level for most of the exams. Understand the difference in return expectations, liquidity, risk and other characteristics between these alternative investments and other asset classes.
You will be required to learn and use an immense amount of quantitative information and formulas to pass the exams, especially at the second level. Most formulas will be fairly basic in mathematical difficulty while others will be harder and include several steps.
Practice problems and repetition are the most obvious way to handle the equations on the exams. There really is no substitute for hard work, so do not neglect this resource. You should first try to understand the inputs and relationships within the formula and what it is trying to show. This will help to memorize the formula and will get you any points questioning the concept behind the idea.
Flash cards are a good resource for handling the more difficult formulas because they are portable and can be used quickly. While many providers sell flash card sets, building your own will give you additional practice writing out the material. Always write out flash cards as word problems instead of simply a list of inputs. This will more closely match the questions on the exam and help you understand where to find necessary data for an equation.
All the tips, tricks and strategies in the world won’t save a lazy candidate. Passing the CFA exams takes a great amount of commitment and drive but it comes with a greater amount of satisfaction and reward. This blog can help put you on the right path and guide you through the exams, but you will still need to do the work. Stay strong, find your motivation and earn your charter!
Good Luck and happy studying!
Joseph Hogue, CFA