MEPX
Chapter 3 of 10All chapters
  1. 1What risk means
  2. 2The trade-off
  3. 3Kinds of risk
  4. 4Measuring risk
  5. 5Time and sequence
  6. 6Diversification
  7. 7Risk as experienced
  8. 8Reducing risk deliberately
  9. 9Risk beyond investing
  10. 10Deciding how much to take

Chapter 3 of 10

Kinds of risk

Naming them separately.

The main ones

Market risk affects everything. Specific risk belongs to one holding. Inflation risk erodes safe assets. Liquidity risk stops you exiting. Currency risk adds another moving part.

  • Diversification handles specific risk only.
  • Concentration in your employer combines job and investment risk.

Correlation

Assets that fall together provide less protection than their individual profiles suggest, and correlations tend to rise in a crisis, exactly when diversification was supposed to help.