Series 6 Investment Strategies and Analysis practice questions
6 of the 50 scored Series 6 questions come from Investment Strategies and Analysis (~12% of the exam). Free CertFuel-authored sample questions, common mistakes, and the glossary terms you need to know.
Investment Strategies and Analysis is part of Function 3: Recommendations & Records, one of the four FINRA Series 6 functional areas. This topic carries roughly 12% of the exam (6 of the 50 scored questions). The full function weight is 50% (25 scored questions).
Series 6 questions on asset allocation, diversification, dollar-cost averaging, portfolio rebalancing, and modern portfolio theory fundamentals.
These are the exam traps that pull the highest miss rates from Series 6 candidates on Investment Strategies and Analysis questions:
- Confusing strategic asset allocation (long-term policy) with tactical asset allocation (short-term tilts)
- Treating dollar-cost averaging as a guaranteed-return strategy (it reduces timing risk, not market risk)
- Forgetting that diversification reduces unsystematic risk but cannot eliminate systematic (market) risk
8 hand-checked Series 6 sample questions on Investment Strategies and Analysis, sampled from the CertFuel practice bank. Click any answer choice to reveal the explanation and the "why it matters" note. Every question is multiple choice (A/B/C/D, one correct answer) and matches the format of the real FINRA exam.
The natural-resource analog of depreciation is:
Correct answer: D. Depletion is the analog of depreciation for natural resources (oil, gas, timber, minerals). Depletion reduces the book value of the natural-resource asset as it is extracted and, like depreciation, is a non-cash expense.
Why not the others?
- A (amortization): Amortization applies to intangible assets (patents, copyrights, licenses), not to natural resources.
- B (impairment): Impairment is a write-down of an asset whose carrying value exceeds its recoverable amount, not the systematic reduction for resource extraction.
- C (accretion): Accretion increases a carrying value over time (e.g., for asset retirement obligations); it is not the natural-resource analog of depreciation.
Depletion as the natural-resource analog. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A customer's portfolio allocation includes 60% in a single mutual fund that is a diversified balanced fund (stocks plus bonds), with 40% spread across three other diversified funds. The representative analyzes concentration and concludes:
Correct answer: B. The question is whether the underlying holdings are spread, not how many fund tickets appear on the statement. A balanced fund at 60% combined with other diversified funds typically produces a well-diversified portfolio.
Why not the others?
- A (the portfolio is severely concentrated because one fund makes up 60%): Concentration analysis is at the underlying-holdings level, not the fund-ticket level. A diversified balanced fund at 60% can still provide broad exposure.
- C (the portfolio needs at least 10 different funds to avoid concentration): There is no minimum fund count. Diversification is about the spread of underlying holdings.
- D (the portfolio automatically violates the ICA 75-5-10 rule): ICA 75-5-10 is a fund-level diversification classification, not a customer-account concentration test.
Fund-ticket count vs underlying holdings. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The Function 3.1 outline names portfolio-theory statistics. Which three are named?
Correct answer: A. The Series 6 outline names alpha, beta, and CAPM as the portfolio-theory vocabulary for this exam. Standard deviation and the Sharpe ratio are not named.
Why not the others?
- B (Standard deviation, variance, and beta): Standard deviation and variance are standard statistics but are not on the Function 3.1 outline for Series 6.
- C (The Sharpe ratio, Treynor ratio, and Jensen's alpha): These advanced metrics are not on the Series 6 outline. The outline is limited to alpha, beta, and CAPM.
- D (Duration, convexity, and yield to maturity): These are fixed-income analytics, not portfolio-theory statistics. They are not on the Function 3.1 outline.
Named portfolio-theory vocabulary on Series 6. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The key difference between Form 10-K and Form 10-Q financial statements is:
Correct answer: A. The 10-K contains audited annual financials; the 10-Q contains unaudited quarterly financials. Audited statements carry more weight because an independent accounting firm has examined them.
Why not the others?
- B (the 10-K reports monthly results, while the 10-Q reports annual results): The 10-K is annual; the 10-Q is quarterly. The names relate to annual vs. quarterly, not monthly.
- C (only the 10-Q contains a balance sheet): Both forms contain balance sheets.
- D (the 10-K is filed only by foreign issuers, while the 10-Q is filed by domestic issuers): Both forms are filed by domestic registrants. Foreign private issuers file other forms (e.g., 20-F).
10-K vs 10-Q. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
Each of the following is true about CAPM (Capital Asset Pricing Model) except:
Correct answer: A. CAPM starts with the risk-free rate, not zero. Every investor earns at least Rf for lending money (time value of money).
Why not the others?
- B (CAPM uses beta as the sole risk measure): This is a correct and often-criticized feature of CAPM.
- C (CAPM provides the expected return against which alpha is measured): Alpha is measured against CAPM expected return, which is a correct framing.
- D (CAPM assumes investors are rational and hold fully diversified portfolios): This is a correct CAPM assumption.
CAPM features. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A customer nearing retirement has a moderate risk tolerance, an income objective, and is fully funding a rollover IRA. The customer wants growth to continue but with less volatility than an all-equity portfolio. Which recommendation best matches this profile?
Correct answer: D. A target-date fund near retirement blends stocks and bonds in proportions designed for moderate risk at that life stage. It addresses the income-transition objective while keeping growth exposure.
Why not the others?
- A (A high-beta sector fund focused on semiconductors): A high-beta sector fund increases volatility and concentration, moving away from the customer's stated desire for less volatility.
- B (A speculative-grade (junk) bond fund): Speculative-grade bonds carry credit risk that conflicts with moderate risk tolerance.
- C (A money market fund only): A money market fund zeroes out growth potential and does not match the customer's desire to keep some growth exposure.
Profile matching for pre-retirement customer. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
Concentration in a customer portfolio is best defined as:
Correct answer: B. Concentration is the opposite of diversification: an outsized allocation to one position or theme. It can apply at the security, sector, asset-class, issuer, or geographic level.
Why not the others?
- A (a holding of any individual stock exceeding 1% of the portfolio): The 1% figure is not a regulatory or outline definition. Concentration is about an outsized portion, not a fixed percentage.
- C (any fund that exceeds the ICA 75-5-10 test): 75-5-10 is a fund-level diversification definition. Concentration is a portfolio analysis concept that operates across the entire customer portfolio.
- D (holding only U.S.-based securities): Domestic-only holdings do reflect geographic concentration, but concentration as a concept is broader than geography.
Concentration definition. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The three core financial statements in an annual report are the:
Correct answer: B. The three core financial statements are the balance sheet (snapshot), income statement (period profitability), and cash flow statement (period cash flows).
Why not the others?
- A (statement of changes in equity, income statement, and risk factors section): The statement of changes in equity and risk factors are components of the annual report but are not the three core statements.
- C (management discussion and analysis, income statement, and footnotes): MD&A and footnotes support the statements but are not themselves core financial statements.
- D (income statement, cash flow statement, and prospectus): The prospectus is a securities offering document, not a financial statement.
Three core financial statements. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The 6 glossary terms most likely to appear on Series 6 Investment Strategies and Analysis questions. Click any term for the full definition, example, and testing pattern.
Asset Allocation
The strategy of dividing investments among different asset classes (stocks, bonds, cash) to balance risk and return based on investment obje...
Diversification
The practice of spreading investments across different securities, sectors, or asset classes to reduce unsystematic risk. Does not eliminate...
Modern Portfolio Theory (MPT)
A framework developed by Harry Markowitz for constructing portfolios that maximize expected return for a given level of risk through diversi...
Strategic Asset Allocation
The long-term target mix of asset classes (stocks, bonds, cash) in a portfolio based on the client's risk tolerance, time horizon, and finan...
Rebalancing Threshold
The percentage deviation from target strategic asset allocation that triggers portfolio rebalancing. For example, if strategic allocation is...
Dollar Cost Averaging
An investment strategy of investing a fixed dollar amount at regular intervals (weekly, monthly, quarterly) regardless of share price. Autom...
Other topics in Function 3: Recommendations & Records (50% of the exam, 25 scored questions). Practice each one to round out the function:
Looking for everything? Head to the Series 6 practice questions hub for all 13 topics, or take the 55-question full practice test.