Question

What are the risks of investing in securities?

Answer 1

There are various risks associated with investment in securities. The first risk known as systematic risk is the risk in the entire market and cannot be diversified. Unsystematic risk is the risk that anyone stock may decline irrespective of the movement in the security market. This risk can be minimised by way of diversification and incorporates event and business risk. There are other risk such as liquidity and opportunity risk. Investment in securities is also exposed to economic risks which is the risk of recession in the economy as a whole due to which investment is wiped out. Inflation also reduces the value of the investment and this is another risk in the security market