The risk attributed to the assets of a single industry or company. Commonly referred to as “specific risk”, unsystematic risk is not correlated to the performance of the overall market. Examples of unsystematic risk include new competition, regulatory changes, fraudulent behavior by a company’s senior management, and union strikes.
Contrary to systematic risk, unsystematic risk can be diversified against. By holding a multitude of unrelated assets in an investment portfolio, one can mitigate the downside of single events. For example, imagine a portfolio of equities held airline stocks, tech stocks, and REIT shares. In the event that airline companies executed a strike, airline stock values may fall, but the integrity of the portfolio may not be compromised. If the portfolio only held airline stocks, however, the value of the entire portfolio may collapse.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
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