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You are here: Home / Investing / Systematic vs. Unsystematic Risk and Your 401k

Systematic vs. Unsystematic Risk and Your 401k

Being financially secure is one of the most important things we have to work for throughout our lives. While living out our passions and living in the moment are romantically essential to living a meaningful life, we should not neglect the practical side of things.

Let’s face it, we will eventually be too old to work and won’t be as healthy as we were 30 or 40 years ago. Being passionate about life and living in the moment knowing that you have no financial debts to pay and have enough saved for the rainy days are keys to not only a meaningful life, but a peaceful one.

The Risks

An important aspect of a secured financial future is investments. We may invest in money, properties, precious metals, and business, among others. But in seeking for rewards, there are always risks involved. Especially when it comes to money matters. Being financially educated is the best way to avoid losses and to have a clearer understanding of how your money should work for you. After all, the years we spend working hard for a comfortable life would all be put to waste if we are not able to get what we deserve.

Tip: Now that you understand the risks, getting the right financial education is important in order to minimize these risks. Find out how…

Systematic and Unsystematic Risks

In finance, there are two types of risks – systematic risks and unsystematic risks and it would be very beneficial to be aware of both.

Unsystematic Risks

Are investment risks that come with having assets or putting up a business and the myriads of problems that you could possibly encounter. Examples of these would be delay in product roll out, employees, or ultimately, financial loss. Further examples are liquidity and marketability risks (Are you putting up your hedge funds the right way? Are your current assets well enough to appreciate instead of depreciate?); and credit risks (not being able to pay on time thereby falling into debt).

Learn more: Investopedia

 Systematic Risks

On the other hand, is a collapse of an entire financial system or market thereby not only caused by an individual, or a group or a certain element of the system. More specific examples of such risks would be recession, interest rates, and wars mostly suffered by an entire country. As a system always works with facets interdependent to one another, a certain failure in one may cause a complete collapse leading to bankruptcy or a bringing down of the market entirely.

Learn more: Wikipedia

Your 401(k)

It is all a matter of living life smartly and retirement is something we have to greatly consider. Invest in building your 401(k) and let it grow. To get the most out of your investment buck, save in a tax-deferred retirement account.

Start now, even if it’s just 1% of your total salary or whatever you can afford. Add at least another 10% to your retirement savings annually and increase the percentage every time you get a raise. Aim for a retirement that will give you at least ten times of your current annual pay.

Come up with strategies and a concrete plan and you will be well on your way to a secured financial future and maybe a trip to the South of France or two.

P.S. – If you are really serious about investing in your future, then we highly advice you to watch this video

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Disclosure: We at Personal Income are not financial or investment advisors and the information on this site does not constitute financial advice. We are compensated to provide our opinions on products, services, websites and various other topics. The compensation received may influence the advertising banners, content, topics or posts made on the Site. That content, advertising space or post may not always be identified as paid or sponsored content. Please see Section 9 of the Terms of Use.

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