We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Systematic Risk?

Malcolm Tatum
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Systematic risk has to do with the risk that is present in any segment of a marketplace, or in the market as a whole. Sometimes referred to as market risk or undiversifiable risk, this type of risk has the potential to impact an entire market segment or even the whole market, and cannot be avoided with the use of various investment strategies. While systemic risk is inherent and cannot be avoided, there are ways to minimize the effects of the risk and protect the investment portfolio to some degree.

Any type of systematic risk will have far-reaching effects that go beyond impacting a particular security or some small group of securities. One example of this type of risk is war. When engaged in a war, the economy is severely affected in a number of ways. While certain sectors of the marketplace may thrive during wartime, there is also great potential for many more market sectors to be adversely affected, especially if the war itself decreases demand for certain goods or services, or diverts resources needed by those industries to manufacture their product lines.

Entering into a period of recession is another example of a systematic risk. With a recession, many industries are likely to suffer. Shifts in the costs of goods and services, changes in consumer demand, and the resulting unemployment that occurs often affects the manufacturing, banking, telecommunications, real estate, and even the retail industry in extremely significant ways. For the investor, a recession can mean preparing for significant losses on investments that were previously profitable. The investor may chose to ride out the economic period in hopes those investments will recover, or try to sell them, cut the losses, and identify any type of investment that is more likely to at least hold its value until the recession has passed.

While avoiding the impact of any type of systematic risk is highly unlikely, there are ways to face that risk and attempt to mitigate the effect to some degree. Some investors have found that the strategy of hedging can minimize the damage done by this type of risk. While others see the approach of varying the holdings in a portfolio as an effective way to deal with a systematic risk, even the most diversified collection of assets still has some degree of risk involved, and is likely to suffer at least some amount of loss.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.