Risk - Why nothing is risk-free and how to compare different Risks!
Risk
Risk is also a board game "the possibility of something bad happening" (Cambridge Dictionary) It's always present. Every decision, project, or investment carries with it risk.
That said, how can we compare and determine the risk of something we want to do/ invest our time and money into?
Determining Risk
When talking about the risk we must take into account two main factors:
Systematic Risk
The systematic risk is the chance that an entire System will fail.
When talking about investments, it is related to, for example, major crises, pandemics, or other major catastrophes, that affect a market as a whole.
It is very important to the crypto market, as regulations and major hacks can lead to a major decrease in most coins' values.
Specific Risk
Specific Risk, sometimes called Idiosyncratic Risk because we must have fancy words for everything, is the Risk that a piece of the System will fail.
This can be related to a companies' unique way of operating, the products it sells, etc.
Normally, people only focus on specific risks, worrying whether this project will succeed or not based on how it is being managed, and on what its plans for the future are.
Nothing is risk-free
Now it's easy to comprehend why there are no risk-free actions.
Even if you can minimize one or both risks, you can't plan for every possible occurrence (as 2020 has shown).
You may get fired from your job after years of being a good employee, the US may default on their debts, and it's possible that in the future the Climate Crises will make our Economies shrink rather than grow year after year.
Conclusion
While analyzing risk can seem very depressing, the fact that you know something bad can always happen is what prepares you to respond and to adapt to new and difficult challenges!
What do you do to evaluate and mitigate your risks, both in the investing world and in your day-to-day life?
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