The U.S. Financial Industry Regulatory Authority (FINRA) re-issued an investor alert on Wednesday that focuses on explaining market risk to nervous investors.
The alert outlines the various types of market risks that investors may face in their portfolios and sets out the steps they can take to minimize those risks. Although individual businesses face company-specific risks, such as management risk and credit risk, market risk involves factors that affect the overall economy or securities markets.
“It is the risk that an overall market will decline, bringing down the value of an individual investment in a company regardless of that company’s growth, revenue, earnings, management and capital structure,” FINRA’s alert says.
The alert details many of these market risks, including interest rate risk, inflation risk, currency risk, liquidity risk, sociopolitical risk, country risk and legal risk.
Although those risks are unavoidable, the alert stresses they can be minimized through diversification and by researching the factors that can impact markets.
“Selecting investments that are less likely to fluctuate with changes in the market can help minimize risks to a certain extent,” FINRA’s alert says.
The alert was initially published for investors around the world through the International Organization of Securities Commissions (IOSCO). “Initially issued nearly a decade ago, the tips remain evergreen and relevant,” the alert says.