What is a Systemic Investment Risk?

All investments have risks! However, the key is to understand them and learn how to manage them. Finding low-risk and high-reward potential investment is critical to investment success.

Broadly speaking there are two risk types: systematic (systemic) risks and unsystematic risks. Unsystematic risks are a company or security-specific risks and we can avoid them with diversification.

Risk vs. Reward

Systematic risk is due to risk factors that affect the entire market or economy such as interest rate change, domestic or foreign investment policy changes, a shift in social-economic parameters, global security threats such as war, and of course something that we are facing right now, a pandemic. Systematic risk is difficult to avoid because it is beyond investors’ control.

Although unavoidable, systemic risks can be managed to avoid huge losses:

1] By placing an appropriate stop order

2] By getting out of your investment positions on time before it’s too late.

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