Market Risk
The risk of losses caused by overall market declines that you cannot diversify away.
What You Need to Know
Market risk (systematic risk) affects nearly every investment at once—think recessions, interest rate spikes, or geopolitical shocks.
Drivers:
- Economic slowdowns
- Interest rate changes
- Inflation surprises
- Market sentiment and liquidity crunches
Key Insight: Diversification reduces company-specific risk but cannot eliminate market risk. You manage it by setting the right asset allocation, holding a long time horizon, and keeping cash for short-term needs.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/risk
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Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.