The Difference Between Systematic and Unsystematic Risks in Investment
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1️⃣ What Are Investment Risks?
Risks are the possibility that an investor may face financial losses due to market fluctuations or company-specific issues. They are divided into two main types:
🔹 Systematic Risk
🔹 Unsystematic Risk
2️⃣ Systematic Risk 📉
✅ Affects the entire market and cannot be avoided through diversification.
✅ Includes economic and political factors, such as:
• Financial crises and inflation.
• Changes in interest rates.
• Natural disasters and wars.
✅ The solution: Hedging by investing in crisis-resistant assets like gold and bonds.
3️⃣ Unsystematic Risk 📊
✅ Relates to a specific company or sector and can be reduced through diversification.
✅ Includes company-specific issues, such as:
• Poor management or failure to generate profits.
• Bankruptcy or loss of market share.
• Changes in demand for the company’s products.
✅ The solution: Diversify the investment portfolio by investing in several companies and different sectors.
4️⃣ How Do You Protect Your Investments?
📌 Against systematic risk: Distribute investments among stocks, bonds, and precious metals.
📌 Against unsystematic risk: Diversify within the market by buying stocks from various companies and sectors.
#Investment #RiskManagement #Diversification #Entrepreneurship #FinancialMarkets
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