Introduction

Welcome to Investment Strategies and Analysis: the analytical framework a Series 6 representative uses to turn the customer's profile and the product universe (from the prior unit) into a defensible recommendation.

Exam Weight: Part of 50% (25 questions across Chapter 3)

What You'll Learn

In this unit, you'll cover:

• Customer-Specific Factors Affecting Product Selection: The four named profile factors (risk tolerance, time horizon, objectives, liquidity) and how they map to Series 6 products
• Diversification: What it reduces (unsystematic risk) and what it does not (systematic risk), and the Investment Company Act (ICA) Section 5(b)(1) 75-5-10 test for a "diversified" fund
• Concentration: The opposite of diversification, common sources, and the representative's role in identifying portfolio imbalance
• Volatility: How price fluctuation varies across Series 6 products and how it must be matched to time horizon and risk tolerance
• Tax Ramifications: How tax treatment informs (but does not override) suitability across taxable funds, municipal funds, variable annuities, 529 plans, and Achieving a Better Life Experience (ABLE) accounts
• Alpha and Beta Considerations: Beta as the measure of systematic risk and alpha as the measure of risk-adjusted excess return (manager skill)
• Capital Asset Pricing Model (CAPM): The formula that links risk-free rate, beta, and market risk premium to expected return, and how alpha falls out of CAPM
• Fundamental Analysis: How the three core financial statements, footnotes, and risk factors in the annual report (Form 10-K) drive intrinsic-value estimates
• Inventory Valuation Methods (LIFO, FIFO): How First-In, First-Out and Last-In, First-Out choices shift Cost of Goods Sold (COGS), earnings, and taxes in rising and falling price environments
• Methods of Depreciation: Straight-line vs. accelerated depreciation and the Modified Accelerated Cost Recovery System (MACRS), plus the non-cash nature of the expense

Why This Matters

Function 3.1 is where Series 6 stops asking "what is the product?" and starts asking "which product for which customer, and why?" Every suitability review, every Regulation Best Interest (Reg BI) care obligation, and every variable annuity exchange analysis under FINRA Rule 2330 depends on the analytical tools in this unit.

The Series 6 exam tests whether you can:

• Match profile to product: conservative profile does not take a sector fund as core equity; short horizon does not take a variable annuity with a long surrender
• Tell systematic from unsystematic risk: diversification handles only the second; market risk stays
• Compute alpha from CAPM: high raw return does not always mean skill, beta changes the story
• Read a balance sheet snapshot vs. an income-statement period: two different time dimensions inside the same annual report
• Predict FIFO vs. LIFO earnings and tax effects: rising prices favor Last-In, First-Out for taxes, opposite for reported earnings

The preceding unit gave you the product universe. This unit gives you the decision framework that makes a recommendation suitable.

Let's start with the four customer-specific factors that drive every product selection.