Market Risk and Stock Specific Risk

There are 2 types of risk generally associated with stocks:

- Market Risk occurs when the entire stock market crash and EVERY stock drops along with it. The only way to protect ourselves against Market Risk is to buy something that would rise during a crash eg. puts etc. or to have a lot of cash around ( good Asset Allocation ).

- Stock-Specific Risk are risks associated with a specific company eg. bad results, fraud etc.  If we invest in about 15 to 20 stocks, we should be able to diversify away the Stock-Specific Risk in the portfolio.

However, we should take a higher perspective of the situation and not look only at diversification of stocks only. We should look at diversifying our Portfolio through various Assets eg. Cash, Foreign Currencies, Bonds, Commodities ( Metals, Grains etc, ) and Properties.

In Equities, we can diversify through IPOs, Private Equities, Mutual Funds, Foreign Currency Stocks, Value Stocks, Growth Stocks, Speculative stocks etc. 

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