How To Prepare for CFA Level 1 [A 90 Percentiler’s Guide]

Embarking on the path to becoming a Chartered Financial Analyst (CFA) is a major step in any finance professional’s career. This highly esteemed qualification opens the door to more significant opportunities in investment management and financial analysis, enhancing your knowledge, skills, and professional reputation.

However, the journey towards achieving this credential is rigorous and demanding. It starts with conquering the first formidable hurdle: the CFA Level 1 exam. In this guide, we will provide an in-depth exploration of how you can effectively prepare for the CFA Level 1 exam. We’ll discuss registration, understanding the exam structure, devising a study plan, recommended study materials, and exam strategies. Let’s get started-

How to Get Started With CFA Level 1 Preparation?

Check the Eligibility

The CFA Level 1 journey requires thoughtful planning and a clear understanding of the exam requirements. The first step is determining your eligibility for the exam.

To register for the CFA Level 1 exam, you need to have:

  1. A bachelor’s (or equivalent) degree, or be in the final or prefinal year of your bachelor’s degree program at the time of registration, or
  2. Four years of professional work experience (does not have to be investment related), or
  3. A combination of professional work and university experience that totals at least four years.

Register for CFA Level 1 Exam

The next step is to officially register for the CFA Level 1 exam. This involves creating an account on the CFA Institute’s official website, filling out the necessary forms, agreeing to the terms and conditions (which include the CFA Institute’s Code of Ethics and Standards of Professional Conduct), and paying the exam registration fee.

Get Access to Official CFA Institute Material

Once you’ve registered, you’ll gain access to the CFA Institute’s study materials, including the Candidate Body of Knowledge (CBOK) and the Candidate Readings. It’s highly recommended to start your study with these resources as they form the basis of the CFA curriculum and exam questions.

Start Making the preparation Strategy

At this stage, you should also start thinking about your study strategy. This involves creating a study schedule, deciding on the order in which you will study the topics, and determining what additional study materials you may need. The sooner you start planning, the more effective your study will be.

In the upcoming sections, we’ll delve deeper into the specifics of understanding the CFA Level 1 exam, devising a study plan, and preparing effectively. So, let’s get started on your path to becoming a CFA charterholder!

Understanding the CFA Level 1 Exam

Having a solid grasp of the CFA Level 1 exam’s format and structure, along with the various topics it covers, will help you strategize your studies more effectively.

Format and Structure of the CFA Level 1 Exam

The CFA Level 1 exam is divided into two sessions—morning and afternoon—each lasting 135 Minutes. Both sessions contain 90 multiple-choice questions, making a total of 180 questions for the entire exam. Each question has three possible answers: A, B, and C.

The MCQs are either in the format of

  • Complete the statement with 3 unique choices
  • Question with 3 unique choices

CFA Level 1 Marking Scheme

Unlike many other exams, the CFA Level 1 exam does not penalize for incorrect answers, which significantly impacts the approach towards answering questions.

  • No Negative Marking: If you choose the correct answer, you are awarded one point. If you choose an incorrect answer or leave a question unanswered, no points are deducted. Therefore, it is always in your best interest to attempt every question, even if that requires guessing.
  • Marks per Question: All questions on the CFA Level 1 exam carry equal marks, which means every question is worth the same number of points. This makes it important to not spend too much time on any single question, as that time might be better spent answering multiple easier questions.
  • Topic Area Weightage: While individual questions carry equal weight, the overall exam does have different weightage for each topic area. This varies from year to year. Understanding this weightage helps focus your study efforts on the areas that will contribute the most to your final score.
  • Pass/Fail: The CFA Level 1 exam is graded on a pass/fail basis. The passing score is determined by the CFA Institute after the exam and is not disclosed to candidates. However, the historical pass rate for the CFA Level 1 exam has been between 35-45%.

Understanding the CFA Level 1 marking scheme is important for your exam preparation and test-taking strategy. In the next section, we will look at how to stay motivated during your CFA Level 1 journey.

CFA Level 1 Subjects: Overview and Weightage

The CFA Level 1 exam covers ten main topics, each with different weightages. Let’s delve deeper into the topics covered in the CFA Level 1 Exam:

  1. Ethical and Professional Standards (15-20%): This topic forms the backbone of the CFA Program. It covers the CFA Institute Code of Ethics and Standards of Professional Conduct, which charterholders must adhere to.
  2. Quantitative Methods (8-12%): This section covers the basic quantitative concepts you need to understand for portfolio management and investment analysis, such as time value of money, probability, statistics, and regression analysis.
  3. Economics (8-12%): Here, you’ll study the principles of economics on both a micro and macro scale. Microeconomics covers supply and demand, the function of individual markets, and market failures.
  4. Financial Reporting and Analysis (13-17%): This section is crucial for understanding financial statements and how to use them in investment analysis. You’ll study the details of income statements, balance sheets, and cash flow statements, and you’ll learn how to analyze them.
  5. Corporate Issuers (8-12%): This topic covers fundamental concepts of corporate finance, including capital budgeting, capital structure, and corporate governance.
  6. Equity Investments (8-12%): This section provides a foundation in equity investments. It covers types of equity securities, equity markets, valuation techniques, and equity market analysis.
  7. Fixed Income (8-12%): This part of the curriculum covers the fundamentals of fixed income securities (like bonds) and their markets.
  8. Derivatives (5-8%): This section introduces the basics of derivatives like futures, forwards, options, and swaps. The focus is on understanding these financial instruments and how they can be used for risk management and investment purposes.
  9. Alternative Investments (5-8%): This topic covers types of alternative investments, such as real estate, private equity, commodities, hedge funds, and infrastructure investments.
  10. Portfolio Management and Wealth Planning (5-8%): This section provides an introduction to the theory of portfolio management, starting with modern portfolio theory and the capital market theory.

Study Sequence

The CFA Level 1 curriculum covers a broad range of topics, making it seem overwhelming at first. However, by strategically deciding the order of study, you can simplify your preparation process and ensure a more effective understanding of the materials.

The suggested order of study takes into account the logical flow of topics and their interrelationships, as well as the weightage of the topics in the exam. Here’s a recommended order:

Ethical and Professional Standards

Begin your studies with this topic, as it forms the foundation of the CFA Program. Understanding the ethical and professional standards will not only prepare you for the exam but will also guide your conduct in your professional life. You may also cover this section at the end of the sequence since it is not a prerequisite for other subjects.

Quantitative Methods

Once you have a strong understanding of the ethical standards, you can move on to quantitative methods. This topic equips you with the basic quantitative tools and concepts required for portfolio management and investment analysis.

Economics

Building on quantitative methods, economics provides the context in which investment takes place. It will help you understand how economic factors can impact investment decisions.

Financial Reporting and Analysis

After grasping economic concepts, shift your focus to financial reporting and analysis. It will enable you to understand and interpret the financial statements of companies, which is essential in investment analysis.

Corporate Issuers

Corporate issuers is closely related to financial reporting and analysis. It covers concepts like capital budgeting and cost of capital that you’ll need for equity and fixed income valuation.

Equity Investments

Armed with the knowledge of corporate finance and financial analysis, you can now study equity investments, focusing on equity valuation and equity markets.

Fixed Income

After equity investments, move on to fixed income. Here, you’ll learn about different types of bonds, their characteristics, risks, and how to value them.

Derivatives

Understanding fixed income will pave the way for studying derivatives, as many derivatives are linked to bonds. This section will introduce you to different types of derivatives and their uses.

Alternative Investments

Following derivatives, explore alternative investments. This topic covers investment options outside of traditional equity and fixed income, such as real estate, private equity, and commodities.

Portfolio Management and Wealth Planning

Finally, study portfolio management. This topic brings together everything you’ve learned so far, showing you how to manage a portfolio of investments to meet specific objectives.

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CFA Level 1 Study Plan

Creating an effective CFA Level 1 study plan is a critical step in ensuring your success on the exam. A well-structured study plan not only helps you manage your time efficiently, but also ensures that you’re adequately covering all the topics, practicing regularly, and leaving time for revision.

The Importance of a CFA Level 1 Study Plan

The CFA Level 1 exam covers a broad curriculum, making it challenging to ensure you’re studying all the topics thoroughly. Additionally, with the exam’s pass rate often around just 40%, it’s clear that a significant amount of preparation is needed to succeed.

A CFA Level 1 study plan provides structure to your preparation, guiding you on what to study, when to study, and how much time to dedicate to each topic. Furthermore, a study plan helps you manage your time effectively, balancing your CFA studies with your professional and personal commitments.

How to Create a Study Plan

Creating a CFA Level 1 study plan involves considering several factors:

  1. Timeline: Begin by considering your timeline until the exam. The CFA Institute recommends at least 300 hours of study for each level of the CFA exam. Depending on how many months you have before the exam, calculate how many hours you should study each week.
  2. Topics: Next, allocate time to each topic based on its weightage in the exam and its complexity. Some topics may require more time due to their complexity or importance in the exam.
  3. Study Sessions: Plan your study sessions. It’s generally more effective to study in shorter, regular sessions than in long, infrequent ones. Aim to study a few hours each day rather than cramming in long sessions on the weekends.
  4. Practice and Review: Make sure to allocate time for regular practice and review. Solving practice questions and mock exams is crucial in reinforcing what you’ve learned and identifying any weak areas.
  5. Breaks: Don’t forget to schedule breaks. Regular breaks prevent burnout and help maintain your focus and productivity.

Sample Study Plan for CFA Level 1

Here’s a sample 6-month study plan for CFA Level 1:

MonthTopics
1Ethical and Professional Standards, Quantitative Methods
2Economics, Financial Reporting and Analysis
3Corporate Finance, Equity Investments
4Fixed Income, Derivatives
5Alternative Investments, Portfolio Management
6Review and Practice

This plan involves studying two topics each month, with the last month reserved for review and practice. Adjust the plan according to your needs, the difficulty of the topics, and your progress.

Creating a CFA Level 1 study plan may seem daunting, but it’s a crucial step in ensuring your success on the exam. In the next section, we’ll discuss the resources you can use to help with your studies.

CFA Level 1 Preparation Timeline

Crafting a realistic and effective timeline for your CFA Level 1 preparation is crucial to your success. You need to take into account the vastness of the curriculum, the level of difficulty of different topics, and the time needed for revision and practice. Here is a proposed timeline that starts six months before the exam-

Six Months Before the Exam

At this stage, you should start your preparation by familiarizing yourself with the CFA Level 1 exam format and curriculum. Create a study plan as suggested in the previous section and begin studying the initial topics.

Five to Three Months Before the Exam

Dedicate these months to a deep dive into the curriculum. Your goal should be to cover all topics by the end of this period. Aim to devote roughly the same proportion of your total study time to each topic as its weightage in the exam. However, remember that some topics might be more complex and require more time than others.

Two Months Before the Exam

By this point, you should have completed your first pass of the curriculum. Now is the time to begin your review phase, going over each topic again to reinforce your understanding. Identify areas where you’re struggling and devote extra time to these.

One Months Before the Exam

Focus this month on practice. The CFA Institute provides a large question bank and mock exams that you should make full use of. Practicing will help you identify your weak areas, get used to the exam format, and improve your speed and accuracy.

One Week Before the Exam

At this point, you should be focusing on relaxation and light review. Avoid cramming new information. Instead, go over your notes, formula sheets, and flashcards. Make sure you’re well-rested for the exam.

This timeline is a rough guide and should be customized based on your personal circumstances and study style.

Detailed CFA Level 1 Subject Wise Guide

Let’s dive into the detailed CFA Level 1 study guides for each subject. This guide will help you navigate each topic in a more structured manner-

Ethical and Professional Standards Study Guide

This topic is the ethical cornerstone of the CFA Program. Begin by familiarizing yourself with the CFA Institute Code of Ethics and Standards of Professional Conduct. Spend 2 weeks on this subject, focusing on understanding the core principles of each standard. It’s vital to be able to apply these standards to real-life scenarios, which you’ll often see in exam questions.

Quantitative Methods Study Guide

Quantitative Methods provides the basic mathematical and statistical concepts needed for investment analysis. Dedicate around 3 weeks to this topic. Start with the time value of money and probability concepts, and then move to hypothesis testing and regression analysis. Ensure you are comfortable with using your financial calculator, as it’s essential for many calculations in this topic.

Economics Study Guide

Economics can be a challenging subject if you don’t have a background in it. Allocate 3-4 weeks for this topic. Start with the basic concepts in microeconomics (like demand and supply), then move to macroeconomic concepts such as monetary policy and international trade. Ensure you understand key economic indicators and how they affect financial markets.

Financial Reporting and Analysis Study Guide

This is one of the most important subjects for the CFA Level 1 exam, so you should dedicate 4 weeks to it. Begin with understanding the components of financial statements and then move to ratio analysis. You should also be comfortable with evaluating a company’s financial health.

Corporate Finance Study Guide

Corporate Finance covers concepts like capital budgeting, cost of capital, and corporate governance. Spend around 2 weeks on this subject. Understand the principles of working capital management and the different methods for valuing a company.

Equity Investments Study Guide

Equity Investments involves understanding equity securities, markets, and valuation techniques. Dedicate 2-3 weeks for this topic. Make sure you understand different valuation methods, such as the dividend discount model and price multiples.

Fixed Income Study Guide

Fixed Income covers the basics of debt securities and their markets. Allocate 2-3 weeks for this subject. Focus on understanding bond valuation, yield measures, and risk factors.

Derivatives Study Guide

Derivatives can be complex, so take around 2 weeks to study this topic. Understand the characteristics and valuation of forward contracts, futures, options, and swaps.

Alternative Investments Study Guide

This subject introduces you to non-traditional asset classes like real estate, private equity, and commodities. You should need about 1 week for this section, as it is a smaller topic.

Portfolio Management Study Guide

Portfolio Management covers the basics of managing an investment portfolio. Allocate 2 weeks to this topic. Ensure you understand the concepts of portfolio theory and the different types of investors and their needs.

CFA Level 1 Study Materials

The CFA Institute provides a plethora of study materials for candidates. However, to augment your studies and suit your individual learning style, you may want to explore additional resources.

Official CFA Institute Resources

The CFA Institute provides comprehensive study materials when you register for the exam:

  1. CFA Program Curriculum: The curriculum covers every topic in detail and includes end-of-chapter questions. It is comprehensive and ensures you are studying material that aligns with the exam.
  2. CFA Institute Learning Ecosystem: This is an interactive digital learning platform that includes the complete CFA Program curriculum, practice questions, mock exams, and study planner.
  3. Topic Tests and Mock Exams: The CFA Institute provides topic tests and full-length mock exams that mimic the actual exam format. These are crucial in gauging your preparation level and familiarizing yourself with the exam format.

Additional Study Materials

While the official resources are comprehensive, you might find it beneficial to supplement them with other study materials:

  1. Study Guides and Notes: Several companies, like Schweser, Wiley, and Quintedge, provide study guides and condensed notes. These are often easier to digest and can be handy for quick reviews.
  2. Question Banks: Additional question banks can be very helpful for practice. Providers like Schweser and Wiley offer extensive question banks that cover each topic area.
  3. Online Courses: If you prefer a more structured approach, consider online courses. Providers like Kaplan Schweser, Quintedge, and Mark Meldrum offer video lessons, live classes, and Q&A sessions.
  4. Flashcards: Flashcards are useful for memorizing formulas, definitions, and lists. You can make your own, or buy pre-made ones from providers like Schweser.
  5. Study Groups and Forums: Joining study groups or participating in forums like AnalystForum can be helpful. You can ask questions, share resources, and get support from other CFA candidates.

Also Read: Best CFA Study Materials in 2023 [Books, Courses & Videos]

Test-Taking Strategies for CFA Level 1

Approaching the CFA Level 1 exam strategically can make a significant difference in your performance. Let’s delve into some test-taking strategies that can help you excel on exam day:

Time Management

Time management is crucial on the CFA Level 1 exam. Practice under timed conditions to get a feel for the pace you need to maintain. During the exam, be mindful of the clock, but don’t rush. If you come across a difficult question, make a reasonable guess, mark it, and move on. You can come back to it later if you have time. You have an average of 1.5 minutes per question.

Master the Art of Guessing

As the CFA Level 1 exam does not penalize for incorrect answers, never leave a question blank. If you don’t know the answer, eliminate the choices that you know are incorrect, and make an educated guess from the remaining options.

Read the Questions Carefully

Many candidates make mistakes simply because they misread the question. Take the time to carefully read each question and all answer choices before making your selection. Pay particular attention to words like “NOT”, “EXCEPT”, and “LEAST LIKELY”, which can completely change the meaning of the question.

Practice, Practice, Practice

The more you practice, the better you’ll understand the types of questions asked on the exam and how to approach them. Make full use of the practice questions and mock exams provided by the CFA Institute and other resources. Review the solutions for the questions you got wrong to understand your mistakes and avoid repeating them.

Keep a Clear Mind

It’s natural to feel nervous on exam day, but try to stay calm and focused. Ensure you get a good night’s sleep before the exam, eat a healthy meal beforehand, and take short breaks during the exam to stretch and relax your mind.

Maintaining a Balanced Lifestyle During Exam Prep

Preparing for the CFA Level 1 exam is a marathon, not a sprint. It requires endurance, dedication, and a balanced lifestyle. Here’s why maintaining a balanced lifestyle is crucial during your exam preparation, and some tips to achieve it:

Importance of Sleep

Numerous studies show the importance of sleep for memory and learning. Aim for 7-9 hours of sleep per night. Try to establish a consistent sleep schedule by going to bed and waking up at the same times every day. If you’re studying late into the night, you’re likely diminishing your ability to retain information.

Healthy Diet

Fueling your body with the right nutrients can enhance cognitive function and energy levels. Incorporate plenty of fruits, vegetables, lean proteins, and whole grains into your diet. Avoid excessive caffeine and sugary snacks, which can lead to energy crashes.

Regular Exercise

Exercise is a fantastic stress reliever and can improve mental stamina. Try to incorporate at least 30 minutes of moderate physical activity into your daily routine. This could be anything from a brisk walk or bike ride to a home workout or yoga session.

Study Breaks

Regular breaks can actually help improve focus and productivity. Try using techniques like the Pomodoro Technique, which involves studying for 25 minutes, then taking a 5-minute break. After four cycles, take a longer break of 15-30 minutes.

Stress Management

Stress can interfere with your productivity and mental health. Develop a stress management routine that works for you. This could involve mindfulness meditation, deep breathing exercises, or keeping a journal. It’s also helpful to maintain a positive mindset and remind yourself of your progress and achievements.

Avoiding Burnout

Studying for the CFA Level 1 exam is a demanding endeavor, and burnout can be a real risk. To avoid burnout, try to maintain a balance between studying and other aspects of your life. Make time for relaxation and hobbies. It’s also important to take full days off from studying periodically.

Conclusion

Preparing for the CFA Level 1 exam is an impressive undertaking that requires commitment, discipline, and strategic planning.

We’ve covered a lot in this comprehensive guide, from understanding the CFA Level 1 exam format and structuring your study plan to exploring various study resources and managing your well-being during your preparation journey. In the end, remember that the key to success in the CFA Level 1 exam lies in your hands. It’s your perseverance, your adaptability, and your relentless pursuit of knowledge that will see you through. Stay focused, stay motivated, and success will be yours.

And finally, best of luck on your CFA journey!

Frequently Asked Questions

How long should I study for the CFA Level 1 exam?

Candidates typically study around 300 hours. Starting at least 6 months in advance is recommended.

What study materials should I use for the CFA Level 1 exam?

Use the official CFA Institute materials and supplement with study guides, question banks, online courses, and study groups as needed.

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