Risk Type: Systemic Risks Vs. Non-Systemic Risks

Question 1

Definition:
- Overall Market Decline

Most Affected Securities:
- Stocks & High-Yield Bonds

Mitigation Strategy:
- Buy Puts
- Short ETFs

Is This Systematic or Non-Systematic Risk?

Answer 1

Risk Type: Market Risk

Type: Systematic Risk (Risk CANNOT Be Diversified)

Question 2

Definition:
- Bond Prices Fall when Interest Rates Rise

Most Affected Securities:
- Long-Term Bonds
- Preferred Stock

Mitigation Strategy:
- Buy Short-Term Bonds
- Buy Stocks

Is This Systematic or Non-Systematic Risk?

Answer 2

Risk Type: Interest Rate Risk

Type: Systematic Risk (Risk CANNOT Be Diversified)

Question 3

Definition:
- Purchasing Power Drops ($ Loses Value)

Most Affected Securities:
- Fixed-Income Securities

Mitigation Strategy:
- Buy Stocks
- Buy Real Estate Investment Trusts (REIT)
- Buy Treasury Inflation-Protected Securities (TIPS)

Is This Systematic or Non-Systematic Risk?

Answer 3

Risk Type: Inflation Risk

Type: Systematic Risk (Risk CANNOT Be Diversified)

Question 4

Definition:
- Issuer Can’t Pay Debt

Most Affected Securities:
- Corporate Bonds
- Preferred Stock

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 4

Risk Type: Credit / Default

Type: Non-Systematic Risk

Question 5

Definition:
- Company-Specific Issue

Most Affected Securities:
- Individual Stocks
- Individual Bonds

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 5

Risk: Business

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 6

Definition:
- Can’t Sell at a Quick or Fair Price

Most Affected Securities:
- Direct Participation Programs (DPP)
- Thinly Traded Assets

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 6

Risk: Liquidity

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 7

Definition:
- Security Called Away Early Limiting ROI

Most Affected Securities:
- Callable Bonds
- Callable Preferred Stocks

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 7

Risk: Call

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 8

Definition:
- Reinvest at Lower Rates

Most Affected Securities:
- Callable Securities

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 8

Risk: Re-Investment

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 9

Definition:
- Foreign Exchange Issues (PIPS)

Most Affected Securities:
- Foreign investments
- American Depository Receipts (ADR)

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 9

Risk: Currency

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 10

Definition:
- Foreign Government Policy Changes

Most Affected Securities:
- Commodities
- Minerals

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 10

Risk: Political

Type: Non-Systematic Risk (CANNOT Be Diversified)

Question 11

Definition:
- Domestic Policy Changes

Most Affected Securities:
- Domestic Policy Changes
- Utilities
- Tobacco
- Healthcare

Mitigation Strategy:
- Diversification

Is This Systematic or Non-Systematic Risk?

Answer 11

Risk: Regulatory

Type: Non-Systematic Risk (CANNOT Be Diversified)