Risk Overview

What this video covers

• Why no investment is truly risk-free, including U.S. Treasury securities, and which risks they still carry
• The positive correlation between risk and return, and why there is no shortcut to high returns without high risk
• How systematic risk (market risk, non-diversifiable risk) differs from non-systematic risk (diversifiable risk, company-specific risk), and which one diversification eliminates
• The five systematic risks in the PRIME mnemonic: purchasing power (inflation), reinvestment, interest rate, market, and exchange rate (currency) risk
• Why non-systematic risk carries the most aliases (unsystematic, diversifiable, business, company-specific) and how to spot the target phrasing when the exam asks which risk diversification eliminates
• The distinction between sovereign risk (foreign government default on debt, a credit concept) and political risk (broader instability and government action), and why they are not synonyms
• Alternate names for specific risks: inflation risk equals purchasing power risk, currency risk equals exchange rate risk, credit risk equals default risk, and capital risk equals principal risk