To achieve huge success, you have to take risks. Most people are afraid taking risk, especially in business, which eventually has a negative result. Remember, “no pain, no gain ” Still, risk taking is the major reason most billionaires became one of the richest people on the planet.
Jeff Bezos as a case study, Founder and CEO of Amazon.com- his success has been hugely due to the risks he has been taking all throughout his career. Recently, he bought The Washington Post, a struggling new operation and looks to turn it around into a revenue generating business.
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In the asset management world, Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return due to a fall in the price of securities such as bonds, stocks, real estate, etc.
Now there are different types of risk which includes ;
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Types of Financial Risk
- Systematic risks - Also known as market risks, are risks that can affect an entire economic market or a large percentage of the total market. Market risk - Is the risk of losing investments due to factors that affect the performance of the overall market.
Examples of systematic risk include inflation risk, currency risk, macroeconomic risk, liquidity risk, interest rate risk, country risk, and sociopolitical risk.
Almost all investment assets are exposed to a form of systematic risk hence why market risk cannot be easily mitigated through portfolio diversification.
- Unsystematic risk- Is a category of risk that only affects an industry or a particular company. Unsystematic risk is the risk of losing an investment due to company or industry-specific hazard. Examples include a change in management, a regulatory change that could drive down company sales, emergence of a new competitor with the potential to take away market share from a company etc. Investors can use portfolio diversification to manage unsystematic risk by investing in a variety of assets.
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