Systematic Risks
Chapters in this video
- 0:00 Why diversification fails against market storms
- 1:37 Beta: measuring unavoidable market risk
- 2:00 Interest rate risk and the gravity rule
- 3:26 Sector risk: why utility stocks crash when rates rise
- 4:56 Purchasing power risk and reinvestment risk
- 5:52 Exchange rate risk: winning the battle, losing the war
- 6:20 Geopolitical risk and the rapid-fire exam recap
What this video covers
- Why systematic risk cannot be diversified away, and the difference between systematic and unsystematic (diversifiable) risk
- How beta measures systematic risk, and what beta of 1.0 or greater than 1.0 means for portfolio volatility
- The inverse relationship between interest rates and bond prices, and why longer maturity plus lower coupon equals greatest sensitivity
- Why utility stocks decline when interest rates rise: high leverage and squeezed margins, not because utilities are fixed-income securities
- What purchasing power risk (inflation risk) does to real returns on fixed-income securities
- How reinvestment risk works as the opposite of interest rate risk, punishing investors when rates fall and coupons must be reinvested at lower rates
- Exchange rate risk (currency risk) and how currency movements can flip a positive foreign investment return negative when converted back to U.S. dollars
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 65 course also includes adaptive practice questions and spaced-repetition flashcards, free through December 31, 2026.