Investment Risk Management

Financial Services

Morgan Wilshire Securities believes that the greatest risk is not taking one! It is this reason that strategic investment risks in the markets, over the long term, have yielded exceptional results.

There is no guarantee that such results will be the case in the future. Each security has its own degree of risk, whether resulting from the performance (or lack thereof) of its operations, downturns in its particular industry, or from outside market forces (e.g., the enormous swing in so-called internet stocks) due to non-company specific actions, such as wild speculation by both.

Types of Investment Risk

Most investment risk is described as either systematic or non-systematic. While those terms seem intimidating, what they refer to is actually straightforward:

Systematic Risk

This is also known as market risk and refers to factors that can affect the overall economy or securities markets. It also affects all companies and regardless of the business’ financial condition, management or capital structure can domestic and international factors.

Investment Risk

Some common systematic risks are as follows:

  • Interest-rate risk
  • Inflation risk
  • Currency risk
  • Liquidity risk
  • Sociopolitical risk

One way of defending against systematic risk is asset allocation, which is to develop a portfolio that includes investments that have the potential to react differently to the same economic factors.

Non-Systematic Risk

This type of risk affects a much smaller number of companies or investments and is associated with investing in a particular product, company, or industry sector.
Some common non-systematic risks are as follows:

  • Management or company risk
  • Credit or default risk

One way to manage non-systematic risk would be to spread your investment dollars around and diversify your portfolio holdings within each major asset. Such as: stock, bonds, and cash by owning individual securities or mutual funds that invest in those securities.

Investment Risk Management

Helping You Manage Risk

Wilshire Securities, Inc. is available to help you sort through the information about each investment and assist you in determining what may be appropriate for your specific objectives, given your stated risk tolerance. While we generally recommend and follow securities traded on the New York Stock Exchange and on NASDAQ’s National Market System, on occasion our clients may choose to invest in securities traded on NASDAQ’s Small Capital Market System and/or use a “short sale” strategy. These types of securities and investment strategies are appropriate for risk tolerant investors only.

Please consult your Morgan Wilshire representative, who can help you better understand the potential risks and rewards of any investment.