Systematic And Unsystematic Risk

You cannot live without risks, but you can work towards managing them by accepting that there is nothing like risk free returns

 Every child has fallen down several times before learning to walk. Every rose has thorns and every medical practitioner has to see blood. All this is part of the system, one cannot live without them. Similarly, inflation, taxes, government policies, geo-political situations and economic cycles affect all investments.

Risks exist in the system; there is no way we can avoid them. Inflation will reduce the real (actual) rate of return from all forms of investment, it may be debt or equity or property. Similarly, taxes eat into the final returns in the hands of investor. In a communist economy wealth creation is difficult, irrespective of the risk taking ability of an individual. Likewise, if local currency is revalued all forms of investments will get impacted. Risk that exists in system is called “systematic risk.”