Although investments in various assets have the opportunity to achieve the target return, it cannot be determined that the returns will always be stable. Because no investment in the world is risk-free. When choosing to invest in high-risk assets, expect higher returns to compensate for the risk. This is in line with the saying "High Risk, High Return." Likewise, if you choose to invest in low-risk securities, you should expect a lower return on your investment as well.

Therefore, one of the key factors in making investment decisions is investment risk, which means the potential for investors not to receive the expected returns. The investment risks are divided into 2 types:

Systematic risk

is the risk that the price of the invested asset changes. Thus, affecting the return on investment in such assets. It is a risk that investors cannot control and affects all types of investment assets

Example systematic risk

1. Changes in the economy which is related to the performance and investment asset prices, for example, if the economic outlook expands. The share price will rise If the trend of the economy shrinks It is often predicted that most of the share prices will fall accordingly, for example.

 

2. Changes in interest rates This causes the price of bonds to change in the opposite direction. If the interest rate increases, the price of bonds will be reduced. On the other hand, if interest rates are lowered, the price of bonds will increase.

 

3. Changes in stock market conditions, such as the stock market is in a hot period, there is a high probability that the share price will go up. Conversely, the stock market is in a downturn. The share price also tends to drop accordingly.

Unsystematic risk

It is the intrinsic risk of the investment asset that may result in the return not being expected. But it is a risk that can be controlled through investment adjustments. Because it is a specific risk.

Examples of unsystematic risks

1. Business risk arising from the operations of that company, such as operating policies Management structure, production project, cost structure, etc.

 

2. Financial risk It is a risk related to the profitability of the company. This is a result of the financial structure, for example, if borrowing large amounts of money or borrowing in foreign currency and without hedging against foreign exchange risk. There will be a lot of financial risks as well.

 

From the definition of investment risk, it is the opportunity that the investor will not receive the expected return. It means something that can happen unpredictably in the future. Because investments have a variety of factors. They are related and result in volatility such as economic conditions, changes in monetary and fiscal policy, industry-specific factors that directly affect the business group. or investment rhythm of investors All are risks that affect investment.

Therefore, risk management is an investment method to make investment portfolios generate good returns in the long run. By minimizing the chance of loss is to diversify investments in a variety of assets to reduce risk.

In the investment world, returns always come with risks. But learning how to manage risks and applying them appropriately to your investment portfolio will help create good returns in the long run. This means that the chances of losing investments can be reduced.