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Suppose I hold a single stock investment in isolation. Would I be compensated for all the...

Suppose I hold a single stock investment in isolation. Would I be compensated for all the risk that I assume? Why?

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Answer #1

There are various types of risks involved in a stock investment some of which can be reduced while others cannot be. Economic risk is one of the most common risk of investment. Of this systematic risk cannot be controlled since it impacts the entire market. It is dependent upon the general economy which is beyond the control of the investor. Unsystematic risk however can be controlled by diversification.

Risk of inflation which destroys the value of the investment also cannot be controlled by the investors. Also they are not compensated for inflation risk which has to be Borne by the investor.

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